Roth IRAs: The Antidote to Higher Taxes?
By James Christy, Wealth Advisor
Who enjoys paying taxes? With federal income tax rates possibly going up in the near future, the case for opening and contributing to a Roth IRA account, if eligible, becomes even more compelling. Roth IRAs are considered tax-advantaged because earnings within them are tax-free if withdrawals are made after age 59 1/2 and the account has been held for five or more years. The deadline for making Roth IRA contributions for tax year 2020 is April 15, 2021. This is true even if you have received IRS approval for an extension of the filing of your 2020 federal income tax return. The maximum contribution for 2020 is $6,000, unless you are age 50 or over, in which case the maximum permissible contribution is $7,000.
Please remember that there is no longer an age limit for making a Roth IRA contribution. Prior to 2020, individuals could not make such a contribution once they turned age 70 1/2, but Congress in 2019 repealed the age limit for tax years 2020 and later.
There remain income limitations governing who is eligible to contribute, however. Single taxpayers must have modified adjusted gross income (MAGI) under $139,000 for tax year 2020, and under $140,000 for tax year 2021 to contribute to a Roth IRA. Married taxpayers filing jointly are permitted to make a contribution if their combined MAGI is under $206,000 for tax year 2020 and $208,000 for tax year 2021.
The rules governing contributions to IRAs can be complicated. Please give us a call if we can walk you through your individual situation to determine your eligibility.