When do you pay taxes on your Traditional IRA? How do you get an IRA write-off?

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VIDEO TEXT:

0:00 Intro
By this point, we’ve concluded that the Roth is what you ordered online, and a Traditional IRA is what you got.

Watch starting from Episode 1 if you’re not sure why. And also like and subscribe.

0:10 How do you contribute to an IRA?
Like a Roth, you contribute to a Traditional IRA with money from your paycheck. After paying for food, rent, clothes, and your non-existent social life.

0:19 Do I get an IRA write-off?
But unlike a Roth, you may be able to write-off your Traditional IRA contributions on your taxes, lowering your tax burden.

0:25 How much of my IRA can I write-off on my taxes?
The kicker is that how much you can write-off decreases if you also participate in a plan at work. And if your write-off is limited, it makes a Traditional IRA no better than a Roth to your bottom line today.

0:35 When do I pay taxes on my IRA savings?
Let’s talk retirement. When you withdraw after age 59 ½, you pay income taxes on your withdrawal. But not on any after tax contributions from your paycheck, which would be double taxation. Only on earnings and pre-tax rollovers like from your 401K.

0:50 Ending
What if you just don’t tell Washington that you made a withdrawal? Poor little tink tink…let’s talk next time.

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When do you pay taxes on Traditional IRA?

A Traditional IRA, or individual retirement account, is a popular retirement savings option for many individuals. One of the key benefits of a Traditional IRA is the ability to contribute pre-tax dollars, allowing for tax-deferred growth of your investments until you begin making withdrawals in retirement.

However, the tax benefits of a Traditional IRA come with certain conditions and requirements. One important consideration is when taxes are due on the funds in your Traditional IRA.

In general, taxes on funds in a Traditional IRA are deferred until you begin making withdrawals in retirement. This means that any contributions and earnings within the account are not subject to income tax until they are distributed to you.

Once you reach the age of 59 ½, you can begin making penalty-free withdrawals from your Traditional IRA. These withdrawals will be subject to income tax at your regular tax rate. If you make withdrawals before reaching this age, you may be subject to a 10% early withdrawal penalty in addition to the regular income tax.

It’s important to note that there are some exceptions to the age requirement for penalty-free withdrawals, such as using the funds for certain qualified expenses like higher education or a first-time home purchase.

Additionally, once you reach the age of 72, you will be required to begin taking required minimum distributions (RMDs) from your Traditional IRA. These RMDs are subject to income tax, and failing to take them can result in hefty penalties from the IRS.

It’s also worth mentioning that if you have made any non-deductible contributions to your Traditional IRA, those funds will be treated differently for tax purposes. When you make withdrawals, the non-deductible portion of your contributions will not be subject to income tax, but the earnings on those contributions will be taxed at your regular income tax rate.

In summary, taxes on funds in a Traditional IRA are typically due when you make withdrawals in retirement, starting at age 59 ½. It’s important to understand the rules and requirements pertaining to taxation of Traditional IRA funds in order to maximize the benefits of this retirement savings vehicle. As always, consulting with a financial advisor or tax professional can help you navigate the complexities of tax laws and retirement planning.