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IRA Refresher

April 23, 2019

In 2019, the IRS increased the limit on annual individual retirement account contributions to $6,000 from $5,500. The catch-up contribution for people ages 50 and up remained the same at $1,000.1 If you’re thinking about investing in an IRA or increasing your contribution, here’s some information to help you make your decision.

A traditional IRA allows you to reduce your current income tax burden by saving money on a tax-deferred basis, which also grows tax-deferred until it is withdrawn during retirement. However, if you take a distribution from a traditional IRA before age 59 ½, you may have to pay both income taxes and a 10 percent penalty. After that age, only income taxes are imposed.2

With a Roth, however, contributions are made after tax, so you may withdraw them at any time; only gains are taxed. After age 59 ½, gains may be withdrawn tax-free as long as you’ve held the account for five years.3

There are various reasons why an investor might choose a traditional IRA or a Roth IRA — or both. If you’d like to learn more about the pros and cons of each type of IRA and which may work best for your situation, please give us a call.

There are a few exceptions to the traditional IRA’s early withdrawal penalty, such as using those funds to purchase a first home. One little known fact — one that may be of interest to people planning for retirement — is that this exception also applies if you haven’t owned a principal residence for the two years before the home purchase.4

The maximum penalty-free withdrawal is limited to $10,000 (per lifetime), which may not go far, but it could help homebuyers reach a 20 percent down payment. Note, too, that both spouses can take this exemption from their respective IRAs, which would result in a $20,000 penalty-free withdrawal. Also be aware that these early withdrawals may avoid the 10 percent penalty, but ordinary income taxes will still apply for that year. 

If you have a Roth, you don’t have to worry about a penalty or income taxes when withdrawing principal, no matter your age. Further, there’s no age limit for contributions, so you can contribute even after age 70 ½ (the traditional IRA age limit). The Roth does not mandate required minimum distributions in retirement, so your money can keep growing tax free.6

If you appreciate the advantages of the traditional and the Roth, you can own both (assuming you meet eligibility rules) and split your contribution between them. However, be aware that your total contributions to both accounts may not exceed $6,000 (plus $1,000 if you are age 50 by year’s end) or 100 percent of your eligible compensation — whichever is less.7


Content prepared by Kara Stefan Communications.

1 Robert Powell. The Street. Nov. 5, 2018. “401(k) and IRA Contribution Limits Boosted for 2019.” Accessed March 4, 2019.

Carrie Schwab-Pomerantz. Charles Schwab. Oct. 4, 2017. “Can You Use IRA Assets to Purchase a Retirement Home? Should You?” Accessed March 4, 2019.

3 Ibid.

4 Ibid.

5 Ibid.

Jamie Hopkins. Forbes. Dec. 21, 2017. “4 Reasons To Start Using A Roth IRA In 2018.” Accessed March 4, 2019.

Denise Appleby. Forbes. Feb. 5, 2019. “5 Steps To Choosing Between A Roth IRA And A Traditional IRA Contribution.” Accessed March 4, 2019.