Watch Vincent J. Russo Legal Correspondent on Catholic Faith Network’s CFN Live!

Vincent appeared on CFN Live on January 12th to discuss “The Nuts and Bolts of IRAs – Part One”

Colleen: Funding IRAs (Individual Retirement Accounts) is a good way to fund your retirement?  Today, we will discuss with Vincent J. Russo some of the ins and outs of funding IRAs.

Vincent: This is definitely a timely topic since we have file tax returns for last year by April 15^th and we are now in a new tax year.

Colleen: So, let’s start with are their different types of IRAs?

Vincent: There are two types of IRAs: Traditional IRAs and ROTH IRAs.  A traditional IRA is funded with pre-tax dollars and a ROTH IRA is funded with after tax dollars.

For example, you earn $76,000 in 2021and you fund your IRA with $6,000, then you only pay income tax on $70,000.  Your IRA grows tax deferred and when you withdraw funds out of the IRA after age 59-½, then the monies that are withdrawn are subject to income tax.

With a ROTH IRA, same facts, you earn $76,000 in 2021and you then fund your IRA with $6,000, you would pay income tax on $76,000.  Your IRA grows tax deferred and when you withdraw funds out of the IRA after age 59-½, then the monies that are withdrawn are not subject to income tax.

Colleen: What are the benefits of having an IRA?

Vincent: IRAs are a vehicle for one to save for their retirement years.  There are several benefits for having an IRA.

1. IRAs are accessible and easy to set up
2. You can take advantage of a traditional IRA tax break right now

Or defer your ROTH IRA tax break until retirement

3. Your IRA is exclusively yours.

Colleen: Now, how much can you put into an IRA and when do you need to do it?

Vincent: For 2021 or 2022, you can contribute up to the lesser of 100% of your earned income or $6,000.

Once you reach age 50, contribution limits on IRAs are increased to $7,000 per year (additional $1,000 as a catch-up contribution).

Be aware that you generally must have earned income to contribute to an IRA.

You can open a traditional IRA through a bank, brokerage, mutual fund or insurance company and invest your IRA money in stocks, bonds, mutual funds, exchange-traded funds and other approved investments.

Colleen: Can anyone fund an IRA?

Vincent:  Almost anyone can contribute to a Traditional IRA, provided you have earned income.  If you’re married and one of you doesn’t work, the employed spouse can make a contribution into a so-called spousal IRA for the other.

Your 2022 IRA contributions may also be tax-deductible. If you—and your spouse, if married—don’t have a retirement plan at work such as a 401(k), you can deduct the full contribution to your traditional IRA on your tax return no matter how much you earn.

Even if you have a retirement plan through your job, you may still be able to deduct some or all of your contribution depending on your income.

Previously, taxpayers who were 70½ years of age or older could not contribute to a traditional IRA. But as of Jan. 1, 2020, this age-limit no longer applies. This greatly helps individuals save towards retirement, as people are living longer and thus working longer.

Colleen: When should I fund my IRA?

 Vincent: IRA contributions can be made anytime during the year or by the due date for filing your tax return for that year.

The best time to fund an IRA is January 1st of the tax year. If the money is sitting in an interest-bearing taxable account, you will lose some of the earnings to taxes. If instead, you put the money into an interest-bearing, IRA it will earn the same interest tax- deferred.

Colleen: When do you pay the taxes on your IRA

Vincent: Eventually, you will have to pay taxes on your Traditional IRA. Your withdrawals will be subject to ordinary income tax. On top of that, if you take the money out before turning age 59 1/2, you can be hit with a 10% penalty. You will also be obligated to take required minimum distributions (RMDs) after you turn age 72, so you won’t be able to avoid the IRS forever.

 Colleen: Can you give an example of the power of investing in an IRA?

Vincent: Tax deferral and Compounding. The immediate tax savings can compound over time if you invest them.

For example, say starting at age 30 you contribute $6,000 to your IRA each year for 37 years. Imagine this saved you $1,500 in income taxes each year, and you took that money and invested it separately. At the end of those 30 years, you would have $763,609 (after tax – $649,067 versus $409,686 (if you invested outside of the IRA). 

Colleen: Vincent, why is this so important to fund a retirement account?

 Vincent: Colleen, we are living longer and before one realizes it, they have to figure out how to live in their retirement years. Today is the day for everyone to make sure they are funding their retirement accounts for the future – before it is too late.

For more information on these topics and more, you can download for free our Planning Guides from our law firm website at vjrussolaw.com

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Vincent can be found on past CFN Live episodes by clicking here.
Topics include:

• NYS Medicaid Home Care Program Changes
• Estate Planning Basics Part 1: Why do I need an Estate Plan?
• Estate Planning Basics Part 2: What is Included in an Estate Plan?
• Estate Planning Basics Part 3: When and Why do I need to update my Estate Plan?
• Estate Planning for Children with Special Needs Part 1: How do I provide for and protect my child?
• Estate Planning for Children with Special Needs Part 2: What Government Benefits are Available?
• Estate Planning for Children with Special Needs Part 3: What Steps Do I Need to Take for my Adult Child with Special Needs?
• Long Term Care Planning Part 1: “How Do I Pay for Long Term Care?”
• Long Term Care Planning Part 2: “How Can Medicaid Home Care Help Me?”
• Long Term Care Planning Part 3: “How to Qualify for Medicaid”
• What is a Power of Attorney?
• Important Legal Updates

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Russo Law Group’s Managing Partner, Vincent J. Russo, is a featured contributor on the Catholic Faith Network’s new show CFN Live. Vincent is the show’s Legal Correspondent. In his segment, entitled “In the Legal Know,” Vincent will keep you abreast of the latest legal developments including elder law, special needs and estate planning — all to help you make informed planning decisions to protect yourself, your loved ones, and your assets.