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Understanding the tax advantages of IRAs

what is the tax advantage of an IRA
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Tip: You have until the tax filing deadline, without extensions, to make IRA contributions. For 2019, the deadline is April 15, 2020.

Traditional IRA

Contributions to a traditional IRA may be tax-deductible for the year the contribution is made. Anyone under the age of 70½ who has earned income — or has a spouse with earned income — can contribute to an IRA. However, there are limits on how much you can contribute pre-tax.

If you or your spouse is covered by an employer-sponsored retirement plan, such as a 401(k), your deduction may be reduced, possibly all the way to zero, based on your income.3 For single filers in 2019, your deduction may be reduced if your modified adjusted gross income (MAGI) is above $64,000. The deduction is eliminated entirely once your MAGI reaches $74,000. For married couples filing jointly, the deduction is phased out between $103,000 and $123,000.

Starting at age 70½, you must begin taking required minimum distributions from a traditional IRA. While earnings from the investments in your IRA grow tax-free, you will owe regular income tax on distributions.

If you are eligible to make a tax-deductible contribution to a Traditional IRA, this is a great choice to make — for tax savings and to help you save more for retirement.

Roth IRA

Contributions to a Roth IRA are not deductible in the year they are made, but withdrawals — including interest and other earnings — are typically tax-free in retirement.

Contributions to a Roth IRA aren't affected by participation in an employer-sponsored retirement plan. However, your ability to make Roth contributions may be limited based on your income.4 For 2019, single taxpayers can make a full contribution to a Roth if their MAGI is below $122,000. Eligibility phases out above that number, with no Roth contributions allowed your once MAGI reaches $137,000. Married taxpayers filing jointly can make the full contribution to a Roth if their MAGI is below $193,000. Eligibility phases out once a married couple's MAGI exceeds $193,000, with no Roth IRA contributions allowed once it reaches $203,000.

Distributions from a Roth IRA are tax-free in retirement, and no distributions are required during your lifetime.

Contributing to a Roth IRA is a great choice if you anticipate that your tax rate in retirement will be more than it is today — or if you're only eligible for a post-tax contribution to a Traditional IRA.

No matter which type of IRA you choose, the earlier you start saving for retirement, the better off you'll be.

Synovus is here to help when you are ready to start saving for your retirement.

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Important Disclosure Information

This content is general in nature and does not constitute legal, tax, accounting, financial or investment advice. You are encouraged to consult with competent legal, tax, accounting, financial or investment professionals based on your specific circumstances. We do not make any warranties as to accuracy or completeness of this information, do not endorse any third-party companies, products, or services described here, and take no liability for your use of this information.

  1. Investment Company Institute, "The Role of IRAs in US households' Saving for Retirement, 2019," published December 2019, accessed January 27, 2020. Back
  2. Internal Revenue Service, “Traditional and Roth IRAs," accessed September 19, 2019. Back
  3. IRS.gov, "2019 IRA Deduction Limits - Effect of Modified AGI on Deduction if You Are Covered by a Retirement Plan at Work," updated June 18, 2019. Accessed October, 25, 2019. Back
  4. Internal Revenue Service, “Amount of Roth IRA Contributions That You Can Make for 2019,"accessed September 19, 2019. Back