What Are the Minimum and Maximum Amounts That Can be Saved Each Year in an IRA?

Federal tax law limits 2017 contributions to a traditional and/or Roth IRA to $5,500 for a worker with earned income ($6,500 for those who are age 50 or older before the end of the year). An additional $5,500 can also be saved for a worker’s spouse, regardless of whether or not the spouse is employed. In addition, spouses who are age 50 or older can contribute an additional $1,000 ($6,500 total) for a total of $13,000 of contributions if both …

What Are the Income Restrictions to Qualify for a Deductible Traditional IRA?

People with earned income who are not in an employer-sponsored retirement plan, regardless of income level, may qualify for a tax deductible traditional IRA. Another group of taxpayers who can deduct a traditional IRA contribution in full are those with an employer-sponsored plan who have incomes in 2017 under $62,000 (single) and $99,000 (married couples filing jointly). The phase-out ranges (where contributions are limited in gradual steps as income increases) for singles and couples are $62,000 to $72,000 and $99,000 …

How do I get less FICA tax taken out of my paycheck?

The percentage of income for FICA tax that workers pay is determined by federal law and is the same for everyone. The only way to pay less FICA tax (as a dollar amount, not a percentage of pay) is to earn less income. FICA stands for Federal Insurance Contributions Act. FICA consists of two separate payroll taxes: Social Security (6.2% of pay) and Medicare (1.45% of pay), for a total of 7.65% of pay.

FICA tax is paid by workers …

Does the exception to the required minimum distribution (RMD) rules apply to self-employed persons who are still working and have SEP plans?

You are referring to the “still working exception” for the required minimum distribution (RMD) from tax-deferred retirement savings plans. This exception applies to employer-sponsored retirement savings plans such as 401(k)s and 403(b)s. If you have one of these plans, you can delay the beginning date of your RMD to April 1 of the year following the later: the year you turn 70½ years of age or the year you retire, unless you own more than 5% of the company. The …

I am 79 years old. What is the required minimum distribution (RMD) for my IRA and 401(k) plan?

This worksheet will help you determine your required minimum distribution (RMD): http://njaes.rutgers.edu/money/ira-table.asp. As you can see in the table, the divisor for age 79 is 19.5 years. Thus, you must divide the total of your assets in all types of tax-deferred retirement savings plans (e.g., 401(k)s and IRAs) by 19.5 and withdraw and pay tax on at least this amount. You can, of course, withdraw more money but will owe taxes on the distributed amount.

To determine your minimum …

Is my FERS federal retirement pension considered taxable income?

Much of a federal government worker’s CSRS or FERS pension benefit will be taxable on a federal income tax return. State income tax laws with respect to pension income vary. You will receive your already-taxed contributions back without having to pay any more tax on them. However, you will receive this money back gradually over your life expectancy. The bulk of the pension you will receive consists of contributions made by your employer (i.e., a federal government agency) and earnings …

How do I pay taxes on my required minimum distribution (RMD) so I don’t get in trouble with the IRS?

It depends. Tax law requires the payment of income taxes throughout the year as you earn income. This obligation can be met through quarterly estimated tax payments, tax withholding, or both. It is a good idea to set aside a portion of the money withdrawn from a tax-deferred retirement plan for the required minimum distribution (RMD) and make quarterly estimated tax payments to the IRS unless your plan custodian provides income tax withholding services. The IRS provides payment vouchers to …

Do I have to pay capital gain taxes on my required minimum distribution (RMD)?

To calculate your RMD, divide the amount of money held in your tax-deferred account(s) at year end by the number of years left in the account owner’s life expectancy and take out at least that amount. The amount of your RMD withdrawal is then added to your other taxable income for the year and taxed according to your marginal tax rate. Thus, the whole amount of a distribution or withdrawal from an IRA, 401(k), 403(b), or other tax-deferred retirement savings …

When considering the required minimum distribution (RMD) for married couples filing jointly, can their distributions be combined for a combined RMD?

Each spouse is responsible for making a required minimum distribution (RMD) withdrawal based on his or her own individual tax-deferred retirement savings account (e.g., IRA and 401(k) plan) balances. Just as these accounts have been funded separately over a couple’s working years, the individual balances of a husband and wife must be handled separately for the purposes of an RMD withdrawal calculation.

For more information about RMD withdrawals, see this eXtension article: How to Make Required Minimum Withdrawals from Retirement

Why do employers prefer defined contribution retirement plans?

Since the mid-1980s, there has been a trend away from defined benefit pensions toward less costly defined contribution plans, especially 401(k)s. A major reason is that defined contribution plans are not linked to a specific benefit formula based on age and years of service. Workers simply receive the amount that they have been able to save with employer matching (if any), plus or minus investment earnings. Thus, the risk of workers’ longevity is not something that employers offering a defined …