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IRA Plans

A traditional IRA is a tax-deferred retirement savings account. You make after-tax contributions. Later you pay taxes on only your any dividends, interest gains or capital gains when you make withdrawals in retirement. Deferring taxes means all of your dividends, interest payments and capital gains can compound each year without taxes.

How It Works

How It Works

An IRA is an investment account, created in 1974 under the Employee Retirement Income Security Act (ERISA). Once you start saving money in an IRA, you can invest in stocks, bonds, mutual funds, ETFs, and other types of assets. You can buy and sell investments within the IRA. However, if you withdraw assets before the age at 59 ½ (known as a premature distribution), you will most likely pay a 10 % IRS penalty fee. You also may be subject to federal, state and local income taxes.

Each year you may contribute up to the lesser of your earned income for that year, or the amount set by the IRS. The maximum you can contribute is based on whether you are age 49 or younger or age 50 or older for traditional and Roth IRA’s. Contributions can be made through April 15 for the prior calendar year.

If you qualify, your contributions to an IRA may be deductible. To see if you qualify for a deductible IRA, consult your Focus Financial representative and use the following guidelines:

2022 Traditional IRA Deduction Limits

2022 Traditional IRA Deduction Limits

Unlike Roth IRAs, there are no income limits with traditional IRAs. And you can deduct your contributions in full if you and your spouse don’t have a 401(k) or some other retirement plan at work.

If either one of you is covered by a plan at work, however, the deduction may be reduced or eliminated. Here’s the full rundown of IRA deduction limits for 2022:

If you’re covered by a retirement plan at work, use this table to determine if your modified AGI affects the amount of your deduction.


If Your Filing Status Is…

And Your Modified AGI Is…

Then You Can Take…

single or
head of household
$68,000 or lessa full deduction up to the amount of your contribution limit.
single or
head of household
more than $68,000 but less than $78,000a partial deduction.
single or
head of household
$78,000 or moreno deduction.

married filing
jointly or qualifying widow(er)

$109,000 or lessa full deduction up to the amount of your contribution limit.
married filing
jointly or qualifying widow(er)
more than $109,000 but less than $129,000a partial deduction.
married filing
jointly or qualifying widow(er)
$129,000 or moreno deduction.
married filing separatelyless than $10,000a partial deduction.
married filing separately$10,000 or moreno deduction.

If you file separately and did not live with your spouse at any time during the year, your IRA deduction is determined under the “single” filing status.

Modified Adjusted Gross Income (MAGI)

The IRS uses your modified adjusted gross income (MAGI) when it comes to IRA limits. This number can be close (or identical) to your adjusted gross income (AGI). It takes your AGI and adds back certain deductions, including:

  • Half of any self-employment taxes
  • IRA contributions and Social Security
  • Losses from a publicly traded partnership
  • Passive income or loss
  • Qualified tuition expenses
  • Rental losses
  • Student loan interest
  • The exclusion for adoption expenses
  • The exclusion for income from U.S. savings bonds
  • Tuition and fees

To calculate your modified adjusted gross income, find your AGI from your tax return. It’s on line 8b of the newly redesigned Form 1040. Then, use Appendix B, Worksheet 2 from IRS Publication 590-A to modify your AGI for IRA purposes.

Excess IRA Contributions: If You Contribute Too Much

It’s good to max out your IRA contributions. But if you go overboard, the IRS considers it an ineligible (or excess) contribution. If you contribute too much—or contribute to a Roth when your income is too high—you’ll owe a 6% penalty on the excess contribution each year until you fix the mistake.

Ineligible IRA contributions trigger a 6% penalty on any amount you over-contribute.

The good news: There are several ways to fix your mistake:

  • Withdraw the excess contribution (and any earnings on it) before the April tax deadline.
  • If you’ve already filed your tax return, remove the excess contribution (and earnings), and file an amended tax return by the October deadline.
  • Apply the excess to next year’s contribution. You’ll still pay the 6% penalty this year, but you’ll be set going forward.
  • Withdraw the excess next year by Dec. 31. You’ll pay the penalty for two years and then move on.

Of course, it’s best to avoid excess contributions altogether. Be sure to pay attention to the IRS’s contribution limits for the year, keep track of your contributions, and watch your income. Just because you were eligible to contribute last year doesn’t mean you still are.

What Type Of Investment Choices Are Available?

What Type Of Investment Choices Are Available?

A Focus Financial Representative can help you choose investments that are appropriate for your financial objectives, based on your personal investment objectives and risk tolerance. You should consider the investment objectives, risks, and charges and expenses of the funds offered carefully before investing.

Benefits Of A Traditional IRA

Benefits Of A Traditional IRA

They are:

Tax-deferred growth

Contributions may be tax deductible

IRA account value protection from creditors

You can use the IRA as collateral when borrowing

Why open an IRA?

Click to learn more about why you should open an IRA plan.

Learn more

Roth IRA

Click to learn more about a Roth IRA Account and its benefits.

Learn more

Plan rollovers

Click to learn more about how plan rollovers work and how it can benefit you.

Learn more

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