Anyone under age 70½ for the entire tax year who has compensation* is eligible to establish an IRA, even if he/she already participates in any type of government plan, tax-sheltered annuity (TSA), simplified employee pension (SEP) plan, qualified annuity plan, Savings Incentive Match Plan for Employees of Small Employers (SIMPLE), or qualified plan (QP) such as pension, 401(k), or profit sharing established by an employer.
*Compensation is defined as the salary or wages you receive as an employee. If you are self-employed, compensation is your net income from personal services performed for the business. All taxable alimony is considered compensation. Passive income such as interest, dividends, and rental income is not considered compensation for purposes of funding an IRA.
The standard contribution limit for 2020 is $6000. In addition, individuals who are age 50 or older during the tax year for which the contribution is made may contribute an additional $1000 catch - up contribution. These contribution limits are subject to cost of lining adjustments after 2020.
In the case of a married couple filing a joint federal income tax return, the contribution limit is based on the compensation of both spouses. The maximum contribution for each individual is $6000 or the total compensation, whichever is less. In most cases, this raises the spousal limit to $10,000.
Regular IRA deductions are based on three factors: your modified adjusted gross income (MAGI), your active participation status in an employer-maintained retirement plan, and your income tax-filing status. Depending on your circumstances, you may claim:
There are no deductions for a Roth IRA.
The Roth IRA is a nondeductible account that features tax-free withdrawals for certain distribution reasons after a five-year holding period. For more information, call Tiney Feltner, Deposit Operations Officer, at 606-487-7216 or 866-435-2161 EXT 7219.
The Education IRA is a nondeductible account that features tax-free withdrawals for a very specific purpose--a child's higher education expenses.
At first glance, the Education IRA looks similar to traditional and Roth IRAs. After all, higher education distributions are permitted from these accounts as well. The crucial difference is that while qualified higher education distributions from a traditional or Roth IRA are penalty free, the same distributions from an Education IRA are penalty free and tax free. (Consult your tax adviser for further information.)
Am I Eligible to Contribute to an Education IRA?
There are two eligibility considerations for an Education IRA. First, the child for whom you are contributing may not have had any contributions made on his or her behalf to a state prepaid tuition program in that year. Second, your modified adjusted gross income (MAGI) cannot exceed certain limits.
A child is defined as a person who is under the age of 18. Contributions may be made on behalf of a child until the day before his or her 18th birthday. Contributions on behalf of an individual aged 18 or older are not permitted.
The law appears to allow contributors to deposit their maximum allowable contribution into Education IRAs for as many children as desired.
No and neither does the child (provided the money is used for qualified higher education expenses). That's the best part of the Education IRA. Unlike a traditional IRA, you cannot take a tax deduction for any of the contributions that you make to an Education IRA. However, when the beneficiary is ready to take his or her withdrawal for school, there are no taxes due on any of the interest that your money has earned.
CALL TODAY FOR MORE INFORMATION!!!
Laiken Kilburn, Deposit Operations Officer
606-487-7216 or 866-435-2161 EXT 7219
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Main Office 606-436-2161
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Telephone Banking 606-487-7150
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