IRAs
An IRA is a special savings plan authorized by the Federal government. Traditional IRAs and Roth IRAs, allow you to invest earned income or taxable alimony for retirement.
When you need to plan for future income to enjoy your retirement, consider adding an Individual Retirement Account (IRA) to your financial portfolio. All the earnings you accumulate in your IRA are tax-sheltered until you withdraw them. You have two options for IRAs: Traditional and Roth.
Traditional IRAs
Traditional IRAs can provide tax-savings now by reducing your taxable income. Your income contributions to a traditional IRA may be deductible, depending on your income and participation in employer sponsored retirement plans.
Roth IRAs
Unlike typical Traditional IRA contributions which are pre-tax, contributions to a Roth IRA are post-tax, meaning you’ve already paid income taxes on those funds. While your contributions are not tax deductible with a Roth IRA, withdrawals of your contributions are permitted at anytime. Earnings are tax-free after five years and age 59 1/2, death, disability, or qualified first-time home buyer.
Choosing your IRA
Both Traditional and Roth IRAs have advantages and disadvantages. Specific factors of your financial profile, such as your present and future tax bracket and your contribution and distribution timeline, can help you decide which retirement account works best for you or whether your best plan is to have both.
This comparison chart provides a summary view of what each type of retirement account offers. At West-Aircomm, we can provide you the right resources to make the best investment strategy for your situation.
| Traditional IRA | Roth IRA |
|---|---|
| Potential tax-free contribution; pay tax on withdrawal | Pay tax before contribution; tax-free withdrawal |
| Tax- deferred earnings | Tax-free earnings if you meet the age and withdrawal conditions. |
| No age restriction; contribute any time | No age restriction; contribute any time |
| Required minimum distribution at age 73 | No required minimum distribution |
| Penalty for withdrawals before age 59 ½ (with some exceptions*) | Penalty-free withdrawal of contributions anytime. Penalty for withdrawals of earnings before age 59 ½ (with some exceptions*) |
*exceptions include death, disability, education expenses, first-time home purchase (up to $10,000), medical expenses, birth or adoption of your child, health insurance expenses, substantially equal payments, IRS levy and reservist payments.
IRA Contribution Minimums and Maximums
To open a Traditional or Roth IRA with West-Aircomm, the minimum deposit is $10. After your first $10 contribution, you can contribution any portion of your income up to the yearly Federal maximum. You do not need to contribute the maximum to benefit from the tax-deferred savings that an IRA provides. You can contribute any amount, up to the maximum, that your budget allows.
| Maximum Contribution (2021) Age 49 or younger | Maximum Contribution (2021) Age 50 or older | |
|---|---|---|
| Individual Taxpayer | $6,000 | $7,000 |
| Married Taxpayer | $12,000 | $14,000 |
| Spousal IRA | $12,000 | $14,000 |
IRA Withholding Notice (FORM 317)
Federal Withholding Notice (Form W-4PIOMB No. 1545-007 4)
Basic Information About Withholding From Pensions and Annunitles. Generally, federal income tax withholding applies to the taxable portion of payments made from pension, profit sharing, stock bonus, annuity, and certain deferred compensation plans; from IRAs; and from commercial annuities.
Caution: There may be penalties for not paying enough tax during the year, through either withholding or estimated tax payments. New retirees should see Publication 505, Tax Withholding and Estimated Tax. It explains the estimated tax requirements and penalties in detail. You may be able to avoid quarterly estimated tax payments by having enough tax withheld from your IRA using Form W-4P.
Purpose of Form W-4P. Unless you elect otherwise, 10 percent federal income tax will be withheld from payments from individual retirement accounts (IRAs). You can use Form W-4P (or a substitute form, such as this form), provided by the trustee or custodian, to instruct your trustee or custodian to withhold no tax from your IRA payments or to withhold more than 10 percent. This substitute form should be used only for IRA payments that are payable on demand.
Nonperiodic Payments. IRA payments that are payable on demand are treated as nonperiodic payments for federal income tax purposes. Generally, nonperiodic payments must have at least 1 O percent income tax withheld.
Your election will remain in effect for any subsequent payment unless you change or revoke it.
Payments Delivered Outside of the U.S. A U.S. citizen or resident alien may not waive withholding on any payment delivered outside of the U.S. or its possessions. Payments to a nonresident alien generally are subject to a withholding rate of 30 percent. A reduced withholding rate may apply if there is a tax treaty between the nonresident alien’s country of residence and the United States. To take advantage of the reduced withholding rate, the nonresident alien must submit Form W-BBEN, Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding, or satisfy the documentation requirements as provided under federal regulations. The Form W-8BEN must contain the foreign person’s taxpayer identification number.
For more information, Publication 515, Withholding of Tax on Nonresident Aliens and Foreign Entities,and Publication 519, U.S. Tax Guide for Aliens, are available on the IRS website at www.irs.gov or by calling 1-800-TAX-FORM.
Revoking the Exemption From Withholding. If you want to revoke your previously filed exemption from withholding, file another Form W-4P with the trustee or custodian and check the appropriate box on the form.
Statement of Income Tax Withheld From Your IRA. By January 31 of next year, your trustee or custodian will provide a statement to you and to the IRS showing the total amount of your IRA distributions and the total federal income tax withheld during the year. Copies of Form W-4P will not be sent to the IRS by the trustee or custodian.
