By: Hirsch Serman, MBA, CPA
The Internal Revenue Service (IRS) has announced that the Roth IRA and traditional IRA contributions will not change for 2020. This means you are able to save up to $6,000 in an IRA ($7,000 of 50 years or older) in 2020 towards your retirement and defer or save on taxes (depending whether you do a traditional or Roth IRA). As a side note, it is not too late to put money into your IRA for 2019.
In order to contribute to either IRA, you must have earned income from activities generating wages, tips, bonuses, commissions etc. It may also include disability retirement benefits. Income that does not count as earned income include rental property, interest and dividends from investments, Social Security benefits and other passive income. In fact, if you earned less than the IRA limit, you can only contribute up to the amount you earned.
The caps are the maximum amounts you can kick into those retirement accounts, whether you use just one type or in any combination. Of course, the higher the limit, the faster you can build your retirement savings if you ante up the maximum allowed. Remember, you can take advantage of these IRA contributions even if you take the new standard deduction rather than itemizing your taxes.
Although you may be able to contribute to an IRA account even if you participate in a company retirement plan, there may be limits on the amount you can contribute or deduct.
The basic differences between a traditional IRA and Roth IRA are as follows. Roth IRA contributions remain nondeductible. Generally, traditional IRA contributions are deductible. But unlike withdrawals from traditional IRAs, withdrawals from Roth IRAs are generally tax free.
Info found from Investors Business Daily and the IRS website