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US News and World Report Features Clarity Financial Design's Founder Melissa Walsh

Melissa Walsh contributed to US News and World Report's recent article about retirement savings and types of IRAs.


IRAs are a critical component of most retirement savings plans. There are many types of IRAs, and many individuals and families can implement more than one IRA strategy as part of their strategy for achieving financial independence.


When thinking about IRAs, it’s helpful to think about three different categories: personal IRAs, employer-sponsored IRAs, and custodial (minor) IRAs.

Personal IRAs are the most common and include traditional IRAs, Roth IRAs, and rollover IRAs.

Traditional IRAs are funded with earned income and can be funded with up to $6,000 per year (or $7,000 per year for people age 50 or older). Making a contribution to a traditional IRA reduces your taxable income in the year you make the contribution. When you withdraw funds from your IRA in retirement, withdrawals are typically taxable as ordinary income.


Roth IRAs are also funded with earned income and can be funded with up to $6,000 per year (or $7,000 per year for people age 50 and older). To be eligible to make a Roth IRA contribution, your income must be below certain limits, which begin at $129,000 for single filers and $204,000 for married filers. Roth IRA contributions do not reduce your taxable income in the contribution year, and funds withdrawn in retirement generally come out of Roth IRAs tax-free.


Rollover IRAs are created to accept funds coming out of your previous employer’s workplace retirement plan (401(k), 403(b), etc). These accounts can be either traditional or Roth accounts.


Employer-sponsored IRA accounts include SEP IRAs and Simple IRAs. Although these accounts are called IRAs, they can be funded with money from your employer.

Lastly, custodial IRAs and Roth IRAs are created for minors. To qualify for these accounts, a child must have earned income. The maximum contribution to these accounts is $6,000 per year or the child's total earned income for the year, whichever is less. The same tax rules apply here. Roth IRA contributions do not reduce taxable income in the year of the contribution, but withdrawals are tax-free in retirement. Traditional IRA contributions reduce taxable income in the year of the contribution, and withdrawals are taxable in retirement.


See Melissa's full remarks at US News and World Report.