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What to know about contributing to both a traditional IRA and Roth IRA, and one brand new place to move unused funds.

00:00 Introduction

00:20 Who Can Contribute to an IRA?

02:06 Spousal IRA

04:12 Traditional IRA vs. Roth IRA Contribution

05:27 Moving Unused Funds From a 529 College Savings Plan

06:54 Can Children Contribute to IRAs?

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LEARN MORE ABOUT: IRA Accounts

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Individual Retirement Accounts (IRAs) are a popular tool for individuals to save for retirement. While many people are familiar with the basics of how IRAs work, there are some lesser-known rules and regulations regarding contributions that can impact your retirement savings. Here are five little-known rules about IRA contributions that you should be aware of:

1. Age Limits for Traditional IRA Contributions: While there is no age limit for making contributions to a Roth IRA, there are age limits for making contributions to a Traditional IRA. Individuals must be under the age of 70 ½ in the year they make contributions to a Traditional IRA. Once you reach this age, you are no longer eligible to make contributions to a Traditional IRA, but you can continue to contribute to a Roth IRA.

2. The Impact of Employer-Sponsored Retirement Plans: If you or your spouse are covered by an employer-sponsored retirement plan, such as a 401(k) or a pension plan, your ability to deduct your Traditional IRA contributions may be limited based on your income. This rule applies to both Traditional and Roth IRAs, so it’s important to consider how your employer-sponsored retirement plan may impact your IRA contributions.

3. Contribution Limits for Spousal IRAs: If you are married and file your taxes jointly, you and your spouse can each contribute to your own IRA. However, the total combined contributions cannot exceed the annual contribution limit set by the IRS. This means that if you are both under the age of 50, you can each contribute up to $6,000 per year (or $7,000 if you are over the age of 50), but the total combined contributions cannot exceed $12,000 (or $14,000 for individuals over the age of 50).

4. Excess Contribution Penalties: If you contribute more than the annual limit to your IRA, you may be subject to excess contribution penalties. It’s important to keep track of your contributions throughout the year to ensure that you do not exceed the annual limit. If you do exceed the limit, you must withdraw the excess contributions by the tax filing deadline for the year in which the excess contribution was made to avoid penalties.

5. Recharacterization Rules: If you make a contribution to a Roth IRA and later realize that you would have been better off making a contribution to a Traditional IRA, you have the option to recharacterize the contribution. This means that you can transfer the funds from your Roth IRA to a Traditional IRA and vice versa. However, there are specific rules and deadlines for recharacterizations, so it’s important to understand the requirements before making any changes.

In conclusion, understanding the rules and regulations surrounding IRA contributions can help you maximize your retirement savings and avoid costly mistakes. By familiarizing yourself with these little-known rules, you can make informed decisions about your retirement savings strategy and ensure that you are making the most of your IRA contributions.