Limitations of an IRA

Feb 16, 2022

Making Sense of IRAs

Attaining financial security in your later years is something that all Americans desire, but few prepare for. Our daily lives can be hectic with our work and short-term needs, making planning for something like retirement seem distant and out of reach. To some, the planning aspect can be daunting, juggling the pressures of our current expenses with the idea of adding an investment account that we likely won’t touch until years down the road.

*Annual Contribution Caps

As you can see whether you are 25 years old or 45 years old, planning for your retirement is something worth investigating, sooner rather than later. By taking the initiative to open either a Traditional or Roth IRA, you will put yourself in a position to save precious dollars on your retirement investments. Consequently, you’ll want to know the tax structure of each so that you can optimize your hard-earned contributions over time.

*Income Limitations on Contributions

A fundamental factor to contemplate is whether you think you will be in a higher or lower income tax bracket than you are now at retirement. While most investors cannot be sure of their future income, you want to do your best to predict. If you anticipate having a higher income by the time you withdraw money, a Roth IRA may be more optimal. Those who see themselves being in a similar or lower tax bracket at withdrawal time, are likely better off selecting a Traditional IRA. One exception to the above paragraph is that high-income individuals face limitations on contributions in a Roth IRA. If your income is above the highest threshold, you may not be eligible to contribute to a Roth IRA at all and thus would defer to opening a Traditional IRA.

For Traditional IRAs:

Distributions before age 59½ are subject to a 10% penalty in addition to federal and state taxes unless an exception applies.
Starting at age 59½, you can begin taking money out of your IRA without penalty, but you will still be responsible for taxes that might be due.
Per the SECURE Act of 2019, as of 1/1/2020, an IRA owner may withdraw up to $5,000 penalty-free from any type of defined contribution plan or a Traditional IRA, upon birth or adoption of a child. Such distributions may also be repaid.

For Roth IRAs:

You can take a penalty-free, federal tax-free distribution of contributions at any time.

You may also take a tax-free and penalty-free distribution of earnings if you meet the following conditions:

You made your first contribution to your Roth IRA at least 5 years ago.
You are over age 59½
Death or disability
It is for a first-time home purchase

*Managing an IRA Considering the Limitations

An IRA can be an integral part of your financial toolkit, allowing you to grow your savings and plan for retirement in a tax-advantaged way. Remember, it’s never too late to open a retirement account, and the sooner you get started, the better.

Knowing how to set and follow a plan is an essential element of the process. From a high-level point of view, most often, an individual who anticipates that they will be in a higher tax bracket by retirement is better off choosing a Roth IRA. In contrast, someone who anticipates being in the same or lower tax bracket is better off choosing a traditional IRA.

Whether you are meeting with a financial advisor, an accountant, or doing it yourself, today is the best day to devise a strategy. Think deeply about how much you will contribute and what IRA structure is best for you. Then decide how you would like to invest or trade your capital so that you can compound it over time.
At TradeStation, we provide a user-friendly platform to help you do just that.

Sign up for and start growing your IRA with TradeStation today. Sign up or (800) 822-0512 or (954) 652-7900 to sign up today.

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Important Information

*TradeStation does not provide legal, investment, or tax advice. Any potential tax advantages or benefits will depend on your circumstances. The information provided here is for information purposes only, it is not intended to constitute tax advice which may be relied upon to avoid penalties under any federal, state, local or other tax statutes or regulations and does not resolve any tax issues in your favor. Refer to IRS Publication 590, Individual Retirement Accounts for additional information on IRAs in general and consult your tax professional about your individual tax situation.

Equities, equity options, and commodity futures products and services are offered by TradeStation Securities, Inc. Cryptocurrency and digital asset products and services are offered by TradeStation Crypto, Inc. The assets in your TradeStation IRA accounts are assets of a custodial IRA account established with a third-party IRA custodian selected by you.

TradeStation Securities, Inc. and TradeStation Crypto, Inc., are each wholly owned subsidiaries of TradeStation Group, Inc., all operating, and providing products and services, under the TradeStation brand and trademark. When applying for, or purchasing, accounts, subscriptions, products and services, it is important that you know which company you will be dealing with. Please click here for further important information explaining what this means.

Investing in cryptocurrencies involves significant risks. Please click here for TradeStation Crypto’s risk disclosures on investing and trading in cryptocurrencies.

Investing in securities also involves risks. Past performance is no guarantee of future results. There is a possibility that you may sustain a loss equal to or greater than your entire investment regardless of which asset class you trade (equities, options, futures, or digital assets); therefore, you should not invest or risk money that you cannot afford to lose. Before trading any asset class, first read the relevant risk disclosure statements on the Important Documents page, found here: www.tradestation.com/important-information.

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Important Information

DISCLOSURES: Futures’ trading is not suitable for all investors and involves the risk of loss. The risk of loss in futures can be substantial. You should, therefore, carefully consider whether such trading is suitable for your financial condition. No statement within this webpage should be construed as a recommendation to buy or sell a futures contract or as investment advice.

BITCOIN DIGITAL ASSET DISCLOSURE: The Cboe Futures Exchange LLC (CFE) and the CME Group, Inc. (CME) have launched, or will soon launch, trading in Bitcoin futures. The CFE futures contracts are cash-settled contracts based on the Gemini’s auction price for Bitcoin, denominated in U.S. dollars. The CME’s futures contracts are, or will be, cash-settled contracts based on the CME CF Bitcoin Reference Rate (BRR) and the CME CF Bitcoin Real Time Index (BRTI). The specifications for each Bitcoin futures contract, including margin requirements and price fluctuation limits, can be found on the CFE and CME websites. TradeStation reserves the right to impose more restrictive limits which may, at TradeStation’s discretion, be revised from time to time. TradeStation also has the contractual right to liquidate all or any part of your position(s) through any means available, without prior notice to you. The regular risks associated with trading commodity futures contracts also apply to the trading of Bitcoin futures.
These risks can be viewed at the following link: www.tradestation.com/important-information/.

Customers choosing to trade Bitcoin futures should consider additional significant risks including, but not limited to: (a) Bitcoin futures contracts have not previously traded on a U.S. regulated futures exchange and as such, there is no futures trading history in this product; (b)The price of the underlying Bitcoin and the indexes upon which the futures contracts are based are highly volatile and unpredictable based on many factors; (c) Since a limited number of futures commissions merchants may offer trading in the Bitcoin futures contracts, there might be limited volume which might impact market efficiencies and price movements; and (d) The risk of loss can be substantial and could result in a customer losing more than the initial or maintenance margin requirement. As such, each customer should conduct his or her own due diligence prior to make a decision to trade in these products. See link below from the National Futures Association for more information. www.nfa.futures.org/investors/investor-advisory.html

FORKING: A hard fork in a blockchain is a permanent divergence from the previous version of a blockchain, and nodes running previous versions will no longer be accepted by the newest version. This essentially creates a fork in the blockchain, one path which follows the new, upgraded blockchain, and one path which continues along the old path. Generally, after a short period of time, those on the old chain will realize that their version of the blockchain is outdated or irrelevant and quickly upgrade to the latest version. In the simplest terms and as it relates to Bitcoin futures, a hard fork is similar to a spinoff into a new instrument. CME is developing a hard fork policy for capturing cash market exposures in response to viable forks. The policy may involve cash adjustments to position holders or listing additional related futures that are also issued to position holders. CFE is developing a hard fork policy for capturing cash market exposures in response to viable forks. The CFE policy is not finalized.

Additionally, the Commodity Futures Trading Commission (“CFTC”) has made available a Virtual Currency Resource Web Page designed to educate and inform the public about this topic and its risks. See the link below for further information from the CFTC.

Retirement Planning