Know about IRA rules in 2020
Are you thinking of investing in the IRA? Do you know the rules and regulations for the IRA? What are the restrictions and limits of the IRA?
What are the different types of rules for the IRA
The rules of the Traditional IRA are broken down in the following categories:
- Contribution rules
- Deduction rules
- Withdrawal rules
The contribution rules
1. Annual contributions to an IRA should not be more than the earned amount.
- $6,000 for people below than 50 years of age
- $7,000 for people above 50 years of age
2. One can contribute to both IRAs in the same year, i.e., Traditional and Roth keeping rule 1 in mind.
3. No minimum amount is needed to open an IRA.
Deduction rules
1. The deduction from the taxes is dependent on income.
2. If one has no access to a workplace savings plan, then he/she can deduct all the contributions.
3. If one has a workplace savings plan, then the below table will help for the year 2020
| Filing Status | 2020 Income limits | Deduction |
| Single or Head of Household | Less than $65,000 | Full Deduction |
| Between $65,000 and $75,000 | Partial Deduction | |
| Greater than $75,000 | No Deduction | |
| Married filing jointly | Less than $104,000 | Full Deduction |
| Between $104,000 and $124,000 | Partial Deduction | |
| Greater than $124,000 | No Deduction | |
| Married filing jointly (spouse covered by the retirement plan at work) | Less than $196,000 | Full Deduction |
| Between $196,000 and $206,000 | Partial Deduction | |
| Greater than $206,000 | No Deduction | |
| Married filing jointly (you or spouse covered by the retirement plan at work) | Less than $10,000 | Partial Deduction |
| Greater than $10,000 | No Deduction |
Withdrawal rules
1. At the age of 59.5, an individual can start withdrawal from their IRAs without any penalty.
2. Before 59.5 years of age, if you withdraw your amount from an IRA, you might have to face a 10% penalty and other income taxes.
3. Many emergencies or urgent requirements arrive when one has to withdraw their IRAs. Therefore, if one has the reason from the following list, one can save their 10% penalty, but still, they have to pay income taxes.
- If you have expenses for the qualified higher education of yourself, your spouse, or children
- If you are contributing up to $ 10,000 for buying or building the first house or rebuilding your first home
- Unreimbursed medical expenses more than 7.5% of AGI
- Military man and called to active duty for more than 179 days and becomes permanently and fully disabled.
- The beneficiary of the dead IRA owner
4. Become the parent by adoption or birth one can withdraw $5,000 from the IRA
5. Roth IRA has no penalty and tax for the withdrawal and you can withdraw any time without age restrictions.
Conclusion
We hope this will help you understand the rules to follow while contributing to IRAs and for future planning. All the best.
