Denise Appleby- Author, Speaker on IRAs & Employer Retirement Plans; Consultant, and Trainer of Choice for Financial and Tax Professionals
Both traditional and Roth IRAs play an important role in an individual's retirement planning. Generally limited to a relatively small amount in terms of initial contribution ($5,500 for those under 50 years of age, $6,500 for those 50 years of age or older by the end of the year), IRAs often become the repository for large dollar amounts because of qualified plan rollovers and growth, particularly when they have been regularly funded for many years. IRA owners should be particularly wary of making pre-59 ½ IRA distributions because such distributions, unless they qualify for an exception, are not only treated as ordinary income but also subject to a 10% penalty. IRA owners have several options for taking distributions that qualify for an exception to the 10% penalty for both traditional and Roth IRA distributions. Additionally, by selecting the right designated beneficiary, a traditional IRA's required minimum distributions (RMD) can be minimized in some cases. Of particular note in terms of making tax-efficient distributions from an IRA are the tax advantages associated with naming a spouse as a beneficiary of an IRA.
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