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Are you in Good Hands?


Worried about how you’ll fare in the annual tug of war with Uncle Sam? Good news: There’s still time to reduce this year’s tax bite by opening an individual retirement account (IRA). IRAs are basically tax-advantaged ways for you to save for retirement. You can contribute income up to the annual limit—$5,500 for 2015, or $6,500 if you’re age 50 or older—in an IRA any time before April 18, 2016.

There are two primary types of IRAs: traditional and Roth. The main difference between the two has to do with when and how you’re taxed on the funds they contain. With a traditional IRA, you contribute pre-tax dollars—meaning you can deduct that contribution amount on your tax return. Those savings grow tax-free until you make withdrawals in retirement. With a Roth IRA, on the other hand, you’ll contribute after-tax dollars—foregoing saving on this year’s tax bill—but pay no tax on your withdrawals in retirement as long as you have held the account for at least five years.

In deciding between the two options, there are also eligibility and flexibility differences to consider.

Traditional IRA

  • Anyone with taxable income can contribute—there is no income limit for eligibility.
  • If you also have a workplace plan, you can take the full deduction for IRA contributions only if you have an adjusted gross income of less than $61,000. (If you are married and your spouse has a retirement plan at work, your joint income will need to be under $183,000 to qualify for the full tax-deferred contribution.)
  • After age 70 ½, you can no longer make contributions.
  • You must begin taking required minimum distributions after you reach age 70 ½.

Still not sure which option is right for you? Your Allstate Personal Finance Representative can provide more detailed information on IRAs and help you decide.

Roth IRA

  • To qualify to make a full Roth contribution for the 2015 tax year, your modified adjusted gross income must be no more than $116,000 (or $183,000 for married couples).
  • You can withdraw your principal tax-free at any time.
  • There are no mandatory withdrawals during your lifetime, so your account can continue to build tax-free well into your retirement years or even be passed down to your heirs.

With tax season approaching, now is a good time to consider your IRA options. Whether you choose a traditional or a Roth IRA, you’ll trim your tax bill today or set yourself up to pay fewer taxes in retirement.