Income taxes are a pain in the rear, and they’re set to increase in the future. As it currently stands, traditional IRA contributions are capped at a maximum of $5,500 per year. But if you would like to contribute more via traditional IRA’s or would like to put your money into the Best roth ira for beginners for tax-free benefits later, you need to know that these limits can be avoided.
- Roth IRA Contributions Do Not Count Towards Your Cap
If you cannot make the maximum contribution now, don’t worry. Roth IRA contributions do not count towards your annual contribution cap for traditional IRAs. This means that you only need to worry about how much you can afford.
- Convert Traditional IRA Funds And Avoid The 10% Penalty On Early Withdrawals
If you have already contributed the maximum amount to your traditional IRA and want to contribute more, you can convert it into a Roth account penalty-free (assuming it persists for five years). Several years of annual contributions to a Roth IRA could equal hundreds of thousands of dollars in tax-free gains.
- You Can Convert a Traditional IRA To A Roth Account Without Paying Tax On The Money
You don’t have to pay taxes on the conversion of a traditional IRA, as long as you complete it within 60 days. By doing this, you can benefit from the same tax benefits that come with converting your taxable investments with stocks and bond mutual funds.
- You’re Only Eligible If You Earn Less than $100,000 Annually
If your income reaches six figures, you can only contribute $5,500 to your IRA. Of course, you can still contribute money if your income reaches the $100,000 cap. But anything above that amount can only be contributed as a Roth IRA.
- You Can Then Re-Convert the Amount To A Traditional IRA Later On
If you ever need access to the money you have invested in a Roth account for any reason, you can simply convert it back into a traditional IRA later on with no tax consequences.
- You Can Get a Tax Credit For Your Contributions
If you would like to help fund your retirement by putting money away into an IRA, consider contributing a certain amount and get a tax credit on the amount you contributed. This is called a credit, because you are receiving an individual tax deduction for each dollar of your contributions.
- It’s Easy To Use If You’re A Small Business Owner
If you are a small business owner, nothing is easier than using a Roth account to plan for retirement. You can contribute as much as $54,000 in one year. Of course, actual contributions are capped at $5,500.
- You Can Move Your Roth IRA Funds to Your Business Account Later On As an Annuity Payout for Retirement Income
If you want to get some income during your retirement years and want it to come tax-free, you can choose the payout method that involves the least amount of taxes (a method called the annuity payout method).