When it comes to financial accounts like the IRA, details are everything. Look past the surface, examine it closer, and you may be surprised that numerous accounts, including your IRAs, contain hidden gems and little-known facts you didn’t know existed. These are the moments when you may discover there are some rules out there that may benefit you and your financial strategy. Here are five of those little-known facts you may not know:
1. Rollover IRA
A rollover is when you cash in another asset from one eligible retirement plan and contribute part of it to another eligible retirement plan within 60 days.
If you have assets in a 401(k) account, you can transfer or roll them over to a Roth IRA or traditional IRA.
Be aware of indirect and direct rollovers, as there could be tax implications. A direct rollover means the money is transferred from one institution to another. An indirect rollover means the money temporarily comes to you (minus the taxes). You then have 60 days to deposit it (with taxes) into a new account.
It is helpful to remember that IRA contribution limits generally change annually, so it is essential that you stay up to date on these details. For 2024, the contribution limit is $7,000, or $8,000 if you are aged 50 or older due to catch-up contributions.
When leaving an employer, a rollover is not the only option. Other options may include leaving the money with the former employer, if permitted, rolling into a new employer's plan, if one is available or even cashing out the account value.
2. Purchasing your first-home benefits
You could potentially use some of your IRA funds penalty-free to purchase your first home. Qualified first-time home buyers may be able to withdraw up to $10,000 from their IRA penalty-free to buy, build, or rebuild their first home. The one catch is that you must close the transaction within 120 days of getting the money.
3. If you have earned income, you can have an IRA
To be eligible for an IRA, you just need to have an income. There is no age limit, so whether you are a teenager or of retirement age, you qualify.
A disadvantage to consider is the contribution limit. For 2024, you can contribute up to $7,000, or $8,000 if you are aged 50 or older, due to catch-up contributions. The deadline to make a traditional IRA contribution is generally April 15 of the following year.
It may also be helpful to know that withdrawals prior to age 59 ½ may result in a 10% IRS penalty tax in addition to current income tax.
4. IRA contributions may be tax-deductible
If your income doesn’t exceed specified levels and a retirement plan at work doesn’t cover you or your spouse, your traditional IRA contributions may be tax-deductible. Some rules may allow a partial deduction also based on income level. Contributions to a traditional IRA may be tax deductible in the year they are contributed. Speak with your financial professional to learn more about a potential benefit.
5. Spousal IRA benefit
For couples that file a joint tax return, you may be eligible to contribute to an IRA account despite not having taxable income, as long as your spouse does. In this case, each spouse may qualify to contribute up to the specified limit. If neither spouse engages in a retirement plan at work, all your contributions could be deductible.
One detail to keep in mind is your total combined contributions cannot exceed the taxable compensation reported on your joint tax return.
Consider consulting a financial professional
Depending on how complex your estate is, when managing your IRA and determining which rules apply to you and how each one may impact your financial strategy and goals, consider consulting a financial professional to conduct a comprehensive review of your financial situation and your options. There is so much out there, and a financial professional may know about some hidden gems you wouldn’t even consider looking for. Don’t let them slip by. Schedule that appointment today.
Important Disclosures:
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial professional prior to investing.
All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.
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This article was prepared by LPL Marketing Solutions
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