Darcy Bergen Explains Benefits of a Traditional IRA

Darcy Bergen

June 8, 2022

Darcy Bergen

Darcy Bergen thinks that contributions to a traditional IRA are tax-deductible, and the funds grow tax-deferred. You may even withdraw the money tax-free, if you want to. The only limit is the first home distribution limit, which is $10,000 per lifetime. In addition, a traditional IRA distribution is a substantially equal periodic payment program, which can be used for expenses like higher education or adoption. IRAs are popular retirement investment vehicles because they offer tax-free growth and distributions.

Contributions to a traditional IRA are tax-deductible

A traditional IRA is a retirement account that allows you to contribute money to your savings for tax-deferred growth. These accounts may be deductible on your income tax return, depending on your marital status and modified adjusted gross income. If you’re an active participant, you can also make deductible contributions, but your contribution must be less than your taxable compensation. If you’re a married couple, you may deduct your entire contribution to a traditional IRA.

Contributions to a traditional IRA are a good way to lower your income. If you’re self-employed, or own a small business, you may be able to contribute even more to a traditional IRA. The deductions vary based on your modified adjusted gross income and whether you’re an employee of a company. But whether you’re in the high tax bracket or low tax bracket at the time of contribution, traditional IRA contributions may be a better fit for you.

Although you may not be able to deduct contributions to a traditional IRA if you’re under age 70, you may be able to save more than you think. However, remember that if you’re under age 70, you must take withdrawals from your traditional IRA in order to avoid paying a 10% tax penalty. However, you can still make future contributions to your traditional IRA and make them tax-deductible.

Tax-deferred growth, points out Darcy Bergen

Contributions to a traditional IRA may be tax-deductible up to a certain limit, which is currently $6,000 for 2018 or $5,500 for 2019. For people 50 and older, they may contribute an additional $1,000. However, they should be aware that the deductibility of their contributions may be reduced or eliminated based on their income, workplace benefits, and other factors. Darcy Bergen notes that despite these limitations, the immediate tax savings may be sufficient motivation to contribute to a tax-deferred account.

Moreover, traditional IRA contributions may be tax-deductible, depending on your age, income, and workplace retirement plans. Tax-deferred growth in an IRA means that your money can grow without any tax until you withdraw it. You can use this tax-deferred account as an investment vehicle. It is advisable to start early, because it is easier to earn returns when the money is tax free

The tax benefits of tax-deferred growth are many. For example, if you have a 24% tax rate and contribute $2,000, you’ll receive a refund of $480 at the end of the year. This means that your money will compound more quickly than if you’d just deposited the money at the end of the year. Increasing your savings can provide tax benefits as well as peace of mind.

Tax-free withdrawals

If you have several traditional IRAs, you must treat them as one. Count any rollover, SEP, or SIMPLE IRAs as one if you plan to make multiple withdrawals. Essentially, traditional IRAs are absolutely the same way, and all withdrawals from them are the same way. Here are some other benefits of traditional IRAs. Unlike traditional savings accounts, you can take withdrawals tax-free if you meet certain criteria.

Darcy Bergen emphasizes that one of the primary benefits of traditional IRAs is the ability to avoid paying income tax on withdrawals. Otherwise, the funds are subject to income tax when you spend them. Traditional IRAs are one of the smartest ways to increase your tax-deferred retirement savings.

Another advantage of traditional IRAs is that they have no restrictions or penalties. Withdrawals from traditional IRAs are tax-free when you reach age 59 1/2. If you are younger than this, you can use the money for college expenses. The withdrawal amount must be at least 7.5% of your adjusted gross income. The threshold is higher for those who are under 65. Another benefit of early withdrawals is that you can continue to make additional contributions tax-deferred until you reach 72.