The rules for your Traditional IRA and Roth IRA for 2023 are:

Contribution limits $6,500 under the age of 50 and $7,500 over the age of 50.
The limits are for all the Traditional IRA and Roth IRA accounts combined. It is not per account.

The IRS will assess a 6% penalty for ever dollar you are over the limit for every year that money stays in the account. It would be in your best interest to get the money out of the account as soon as you can to avoid any additional penalties.

A Traditional IRA contributions can be made up to age 70-1/2. No contributions can be made after you turn age 70-1/2.

A Roth IRA allows contributions for a lifetime.

You are required to take a minimum distribution from a Traditional IRA upon reaching the age of 72 and every year after. This is know as an RMD (Required Minimum Distribution).

Roth IRAs are not subject to a minimum distribution.

A Traditional IRA the contributions are not taxed. They are considered pre-tax dollars. The contributions can be deducted from your taxable income base to lower your tax liability.

A Roth IRA the contributions are taxed. They are considered after-tax dollars. The contributions cannot be deducted from your taxable income base.

The interest, dividends, and capital gains from the investments held in both a Traditional and Roth IRA are not taxed.

The distributions from a Traditional IRA are taxed as ordinary income.

The distributions from a Roth IRA are not taxed.

Is a Roth conversion right for you?

You might consider converting your Traditional IRA to a Roth IRA before you retire.

You will pay taxes on the money you convert, but the distributions from the Roth IRA will not be taxed.

Before considering a Roth conversion talk with you tax and/or financial professional to make sure it is the right thing for your situation.

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Eric Boyum, AAMS, CKA is the host and financial advisor with Inspire Advisors, LLC.

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The opinions voiced in this material are for general information ONLY and are NOT intended to provide specific advice or recommendations for any individual. This information is NOT intended to be a substitute for specific individualized financial, legal, and/or tax advice. Individual financial, legal and/or tax matters should be discussed with your financial, legal and/or tax professional.

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Traditional IRA & Roth IRA Limits and Rules 2023: What You Need to Know

As we approach the new year, it’s essential to familiarize ourselves with the updated rules and limits of retirement savings plans. Among the most popular options are Traditional Individual Retirement Accounts (IRA) and Roth IRAs. These accounts offer tax advantages that can help individuals secure a comfortable retirement. However, it’s important to understand the 2023 limits and rules governing these accounts to maximize their benefits.

Traditional IRA Limits and Rules 2023:

Contributions: For 2023, the annual contribution limit for a Traditional IRA remains unchanged at $6,000. However, individuals who are 50 years old or above can make an additional catch-up contribution of up to $1,000, increasing their total contribution limit to $7,000. It’s worth noting that these limits apply to eligible individuals who do not participate in an employer-sponsored retirement plan, such as a 401(k), or have income above specified thresholds.

Income Limits: Unlike Roth IRAs, Traditional IRAs do not have income limits for contributions. However, if you or your spouse participates in an employer-sponsored retirement plan, the tax deductibility of your Traditional IRA contributions may be affected based on your modified adjusted gross income (MAGI). It’s recommended to consult a tax advisor or refer to IRS guidelines to determine your eligibility for deductions.

Withdrawals: When it comes to withdrawals, Traditional IRAs follow a strict set of rules to ensure efficient tax management. Distributions taken before age 59 and a half may face a 10% early withdrawal penalty, in addition to ordinary income taxes. However, there are exceptions to this penalty, such as for first-time homebuyers, medical expenses, or higher education expenses. Once you reach age 72, you are required to take annual minimum distributions (RMDs) from your Traditional IRA, which are calculated based on your life expectancy and account balance.

Roth IRA Limits and Rules 2023:

Contributions: The contribution limits for Roth IRAs in 2023 remain the same as Traditional IRAs at $6,000 per year. The catch-up contribution limit for individuals aged 50 and above also remains unchanged at $1,000, providing a total contribution limit of $7,000.

Income Limits: Roth IRAs have income limits determining eligibility for contributions. For 2023, the ability to make full contributions to a Roth IRA begins to phase out for individuals with a MAGI of $140,000 (or $208,000 for married couples filing jointly). Contributions are then completely phased out once the MAGI reaches $155,000 (or $198,000 for married couples filing jointly).

Withdrawals: Roth IRAs offer more flexibility than Traditional IRAs when it comes to withdrawals. Contributions to a Roth IRA can be withdrawn at any time tax-free and penalty-free since these contributions were made with after-tax dollars. However, earnings on contributions can generally only be withdrawn tax-free and penalty-free after the account has been open for at least five years and the owner reaches age 59 and a half.

Converting Traditional IRAs to Roth IRAs: It’s possible to convert funds from a Traditional IRA into a Roth IRA. However, it’s important to note that taxes will be due on the converted amount since Traditional IRA contributions are typically tax-deductible. Before considering a conversion, it may be wise to consult with a financial advisor or tax professional to assess the potential tax implications and benefits in light of your individual circumstances.

Understanding the limits and rules of Traditional and Roth IRAs for 2023 is crucial for optimizing your retirement savings strategy. By diligently adhering to these guidelines, individuals can make the most from the tax advantages offered by these retirement accounts. As always, it’s recommended to consult with a professional financial advisor or tax expert for personalized advice based on your specific financial situation.