Video Summary
Good afternoon. I’m Tom Mitchell, a partner at the law firm of Waller and Mitchell in New Port Richey, Florida; I wanted to talk to you this afternoon for a minute or two about IRAs. Everybody knows what they are, but very few people know exactly how they work.
Basically, there are two types of IRAs. There is the traditional IRA and the Roth IRA, and there are differences between them. In the traditional IRA, you get to make contributions in to the plan. The money that you put in there accrues interest or dividends and its tax free while it’s in there but when you take the money out, then it’s taxed to you as ordinary income.
On the other hand, with the Roth IRA, when you put the money in, there is no current deduction on your income tax return. The money still grows tax-free while it’s in the account but you get to take it out tax exempt at the end of the time when you retire.
So the next question is who can have an IRA? Basically, anybody who is 70 1/2 and with earned income can establish and contribute to an IRA. When you establish and contribute to an IRA, the account is held by a person called a custodian and they will send you statements every year exactly what the balance of your account is. They also report that to the Internal Revenue Service.
So the next question is then when can I start taking money out? And the first answer is you can take money out at 59 1/2 and that’s awesome. You don’t have to take it out then but you can. And the maximum time that you can delay to take out any money out of your account is 70 1/2. And each year the custodian that I spoke of earlier calculates the balance in your account, divides it by your statistical life expectancy and then they send you a check for that amount.
If you take money out before you’re 59 ½, there’s a penalty. If you take money out after 70 1/2 that’s not sufficient to cover your required annual distribution, there’s also a penalty.
So if you have any questions about your IRA account, be sure to give me a call. This is Tom Mitchell with Waller and Mitchell. My number is (727) 847-2288.