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What is an IRA? Your Questions answered

An IRA, or Individual Retirement Arrangement, is a personal savings account set up at a financial institution that allows you to save for retirement. IRAs also offer tax-free, or tax-deferred investments, meaning that you are taxed less on your earnings after contributing to them. The two main types of IRAs are Traditional and Roth, and which one you choose will decide whether you pay taxes before contributing or after withdrawing funds, and when you are required to withdraw funds.
 
Now’s a great time to open an IRA! You have until April 18, 2023, to either open an account or contribute to an existing one, and have it count toward your 2022 tax year. Individuals are allowed to contribute up to $6,0000 (or $7,000 if you are 50 or older in 2022).  Call 866-SUNMARK or visit a Sunmark branch for more details.
 

Traditional IRA

  • Allow tax deductions on the contributions you make in the year they are made.
  • You then pay taxes when you withdraw the money in retirement.

Roth IRA

  • You do not receive a tax benefit while contributing to the account before retirement.
  • The money you withdraw in retirement is tax-free.

IRA FAQ

Q: Is there a maximum amount you can put in an IRA?
A: IRA accounts have contribution limits based on filing status and income, which change yearly. The contribution limits can be found by visiting the IRS website here.

Q: Is it possible to “make too much money” to be eligible for a Roth IRA?
A: There was an income cap for conversions in the past, but that was removed and now anyone can convert a traditional IRA to a Roth IRA, regardless of income.

Q: Does a conversion automatically put me in a higher tax bracket?
A: Pre-tax dollars converted into a Roth are considered taxable income, but you aren't automatically bumped into a higher tax bracket simply by converting. You can minimize the tax impact by spreading out the conversion over a few years.

Q: Can I only convert once a year?
A: The IRS only looks at the total amount converted every year. It doesn't matter how many conversions you initiate. Contrast this with tax-free IRA rollovers between two separate traditional IRA accounts, where you must wait a year before initiating additional rollovers from or to an account.

Q: If I convert, can I change my mind?
A: If you are unhappy with your Roth IRA conversion, you can reverse it until October 15 of the following tax year. The IRS "recharacterizes" your Roth account back to traditional IRA status and you’re back where you started with no penalty.

Choosing which IRA type is right for you might seem confusing, but the professionals at Sunmark are ready to help. If you have questions or want to learn more, visit any Sunmark branch or call us at 866.SUNMARK.

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