ON MONEY: More Bocconcini of the IRA | Features

ON MONEY: More Bocconcini of the IRA |  Features

So, if you both are over age 50 and one of you earns at least $13,000 in 2021, each of you may contribute $7000 to either a Roth or a traditional IRA Also, do not forget the income limitation if one or both spouses is a participant in a plan at work.

Even if only one spouse has earned income, each may contribute to a separate IRA, but the total contribution to both IRAs cannot be greater than your joint taxable income or the annual contribution limit for IRAs times two, whichever is less.


  • When you take money out of a traditional IRA before you are 59½, you may be subject to a 10% early withdrawal penalty unless you qualify for an exception. These permitted exceptions are:

  • As long as tax brackets remain low, Roth IRAs become more attractive, since contributions to a Roth are not deductible. The appeal of a Roth is that RMD’s are not required for the Roth owner and leaving the Roth to a child who is no longer a minor can provide income to the adult child for their lifetimes. Leaving a Roth to a minor child is more complicated, since either a custodian or a trust must be employed as a go-between.

If you are purchasing your first home, you may withdraw up to $20,000 (if married) or $10,000 (if single) without having to pay the penalty. This treatment does not apply to 401(k) withdrawals, but you could roll the 401(k) funds over to an IRA and then take the distribution from the IRA.

Paying for college costs for yourself, your spouse, children, or grandchildren. These costs include tuition and fees, plus other materials required for attendance.

You may use IRA distributions to pay for unreimbursed medical expenses that are greater than 10% of your adjusted gross income.

Ditto for health insurance premiums for you and your family if you are unemployed. In order to qualify you must receive unemployment compensation for 12 weeks in a row.

If a physician determines that you are disabled and will continue in that state indefinitely, you can qualify for exemption from the 10% penalty. If you are in the military and have been deployed for at least 179 days, you may take a penalty-free distribution while you are still on active duty.

Certain payments based on your life expectancy (think annuity) can avoid the penalty if they continue until you are at least 59½. You can always take your contributions out of a Roth without penalty of 10%, but if you have not yet reached 59½, you will be subject to the 10% penalty on your investment earnings if you withdraw any funds before you attain 59½, unless you qualify as covered above.

You are allowed to convert monies in a traditional IRA to a Roth IRA, but the transaction will trigger income taxes on the amount of the conversion. The conversion can take place via a rollover, a trustee-to-trustee transfer, or a simple transfer within the same financial firm. Since making a Roth IRA contribution has maximum income limits, many high-income earners cannot make a Roth contribution. However, since there are no income limits for making a traditional IRA contribution (limited or no deduction if you or your spouse are in a plan at work), one could make a non-deductible IRA contribution and subsequently convert that amount to a Roth IRA. This approach is known as a back-door Roth contribution and was initially viewed with skepticism, but Congress has verified that the technique is allowable. However, there are things to consider:

Since this is technically a conversion and not a contribution, you must season these dollars in the Roth for at least 5 years and be age 59½ to withdraw those values tax-free. Remember that the appeal of a Roth is its long-term benefits, so if you are going to pursue this strategy, your goal should not be to withdraw the monies early.

Second, if you currently have traditional IRA assets, the technique is not tax free and may not be worth pursuing. First, there are now no age limits for making an IRA contribution, but you must have earned income.