J.K. Lasser's Your Income Tax 2022

CHAPTER 8IRAs

There are several types of IRAs: Traditional IRAs, Roth IRAs, SIMPLE IRAs, and SEPs. You may personally set up a traditional or Roth IRA with your bank or broker. SIMPLE IRAs (8.19) and SEPs (8.16) are available only if your employer offers such plans. For 2021, the contribution limit for both traditional (8.2) and Roth IRAs (8.21) is $6,000, or $7,000 for individuals who are age 50 or older at the end of the year. There is no deduction for Roth IRA contributions, which are allowed only if you have earned income and only if your modified adjusted gross income (MAGI) is within specified limits (8.21). If you have earnings, you may make traditional IRA contributions, which are either fully deductible, partly deductible, or not deductible at all, depending on whether you (and your spouse) have retirement coverage where you work and if so, whether your MAGI subjects you to the deduction phaseout rules (8.4).

Traditional IRA distributions are generally fully taxable and, if made before age 59½, subject to a penalty; see (8.12) for penalty exceptions. Minimum annual distributions from a traditional IRA must begin after you reach the required beginning date (8.13).

Although annual contributions to a Roth IRA are not deductible (8.21), the Roth IRA has a major tax advantage: tax free withdrawals of earnings may be made after a five-year waiting period if you are over age 59½ (8.25). Tax-free withdrawals of contributions may be made at any time. A traditional IRA may also ...