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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 who has 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 2018, your deduction may be reduced if your modified adjusted gross income (MAGI) is above $63,000. The deduction is eliminated entirely once your MAGI reaches $73,000. For married couples filing jointly, the deduction is phased out between $101,000 and $121,000.
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.
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 2018, single taxpayers can make a full contribution to a Roth if their MAGI is below $120,000. Eligibility phases out above that number, with no Roth contributions allowed your once MAGI reaches $135,000. For married taxpayers filing jointly, eligibility phases out with a MAGI between $189,000 and $199,000.
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.