To contribute to an IRA, you must have taxable compensation. This includes income from wages, salaries, tips, commissions, and bonuses. It also includes net income from self-employment.

For couples where one spouse doesn’t work, the Spousal IRA provision allows the working spouse to contribute to a Traditional or Roth IRA on behalf of the non-working spouse. The non-working spouse must open their own IRA, which is still subject to income limitations.

IRA Comparison Table (2025)

Required Minimum Distribution (RMD) Rules

RMDs must begin at age 73 for those born 1951–1959; age 75 for individuals born in 1960 or later (effective 2033). The “RMD April 1” deadline means your first RMD from accounts like traditional IRAs/401(k)s is due by April 1st of the year after you turn 73 (or 75 for those born 1960+), allowing you to delay it from the year you hit the age, but you’ll take two RMDs (the delayed first one + the current year’s) in that calendar year, with all subsequent RMDs due by December 31st.

Inherited IRA’s

If you inherit an IRA, the rules for distributions depend on:

1. The account owner’s date of death (before or after 2020).
2. The beneficiary’s relationship to the owner (spouse or non-spouse).
3. The original owner’s age (did the owner pass before or after required beginning date).

For non-spouse beneficiaries, whose account owner passed after 2019:

1. If the original account owner had begun taking RMD’s, the 10-year rule generally applies, meaning the account must be fully distributed within 10 years following the year of death, taking annual RMD’s year 1-9. For 2025, most non spouse beneficiaries must begin taking annual RMD from an inherited IRA and empty the account within 10 years.
2. If the original account owner died before their required beginning date for RMD’s, the annual RMD for the beneficiary may not be required but the beneficiary still must empty the account by year 10.

Inheriting a Roth IRA means funds are not taxed upon distribution, but rules dictate how and when they must be withdrawn.  RMDs are required for most non-spouse inherited Roth IRAs in 2025 if the original owner died after reaching their required beginning date (age 73), under the 10-year rule. Roth owners are always considered to have died before their required beginning date, meaning beneficiaries don’t take annual RMDs during the 10-year payout; the entire account must just be emptied by year 10, with no required annual withdrawals.

Although retirement may be years away, the steps you take today to plan and save for it can make a big difference in your financial security decades from now. Here are 10 general tips that you may find helpful when saving for retirement. For specific advice about planning and saving for retirement, please consult your financial professional.

1. The earlier you start saving, the easier it may be.

That’s because the earlier you start, the more time your savings have to potentially compound and the less money you may need to contribute to reach your savings goal. Ideally, you should begin saving for retirement as soon as you begin working. But if you haven’t started yet, the next best time to begin saving is generally today.

2. Know how much to save each year.

Saving 10% to 15% of income each year may be an appropriate amount for many people. But keep in mind that the percentage that is right for you will depend on many factors, including your age, the amount you’ve saved so far, and the other sources of retirement income, such as pensions, that may be available to you in retirement.

3. Take advantage of the retirement plan at work.

If your employer offers a retirement plan, it’s usually the first type of account to use when saving for retirement. Workplace retirement plans offer convenience and tax advantages that may help your savings grow faster. And with some retirement plans, your employer may match a portion of the money you contribute to your account.

4. IRAs are also a great option.

IRAs offer similar tax benefits to workplace retirement plans, making them a good choice for individuals who do not have access to a retirement plan at work or who have reached the annual contribution limit on their workplace retirement plan and want to save additional amounts.

5. Not employed? Consider a spousal IRA.

Normally, you can only contribute to an IRA if you earn taxable compensation, such as wages. However, you may still be eligible to contribute to an IRA even if you don’t have taxable compensation as long as you are married, you file a joint tax return, and your spouse has taxable compensation for the year.

6. Self-employed? Start your own retirement plan.

If you are self-employed or own your own business, you can start a retirement plan for your business, which is generally easy to do and may allow you to contribute considerably more income each year than a traditional or Roth IRA will allow.

7. Avoid tax penalties on early withdrawals.

Money that you withdraw from a retirement plan or IRA before age 59½ is generally subject to a 10% tax penalty for an early distribution. There are exceptions to the “age 59½ rule” that may allow you to access your savings earlier without penalty.

8. Be smart about your savings when changing jobs.

If you have money in a workplace retirement plan, you’ll generally have four options for that money when you leave the company. You may be able to leave it where it is, move it to your new employer’s retirement plan, move it to an IRA, or cash it out. Each option has its pros and cons, which you should explore fully before you make a move.

9. Use regular accounts to save even more.

Although retirement plans and IRAs offer tax benefits, they also set limits on the amount you can contribute each year. To save additional amounts for retirement, use regular taxable investment and savings accounts. Regular accounts do not have annual contribution limits and generally offer more flexibility regarding withdrawals.

10. Seek professional advice.

Planning how to fund a retirement that may stretch for decades can be complex. Fortunately, help is available. Please contact your TBC Advisor for advice regarding saving for retirement.

Copyright 2023 Quinn Communications Inc.

With tax year 2021 coming to a close, we need to consider what can be done to help lower your tax bill for this year and next. With the uncertainty of pending legislation, here are some tax planning ideas for individuals:

Income/Deduction Deferral or Acceleration

Consider the following to accelerate income into the current year:

• Consider converting an IRA to a ROTH IRA during 2021.
  • Note the current tax laws allow all employee after tax contributions to qualified plans as well as after-tax IRAs to be converted to a ROTH IRA. Under the Build Back Better Act that is currently pending, this “Back Door ROTH IRA Conversion” is proposed to be eliminated for all retirement distributions, transfers, and contributions made after 12/31/2021.  Please note the conversion to a ROTH IRA may increase your income.

• Recognize capital gains earlier than planned if you may be in a higher tax bracket in 2022.

Deductions will be more valuable in tax year 2022, if tax rates increase.

• As the standard deduction increases from year to year, more and more individuals are benefiting by the higher amounts and not itemizing their deductions on their return. As a result, they are not taking advantage of any charitable donations.  However, individuals may consider “bunching charitable gifts” whereby gifts that would normally be made over a two or three year period instead were significantly made in one year, resulting in potential tax savings. With this concept, taxpayers may benefit by alternating between claiming the standard deduction in some years and itemizing deductions in other years. If possible, “lumping” as many as those deductions into those years when itemizing.
• If you are bunching deductions, pay your January mortgage payment at the end of December to get an extra month of interest on your mortgage.
• Taxpayers age 70 ½ or older can make a qualified charitable distribution, up to $100,000, directly from their IRA, other than a SEP or SIMPLE IRA, to a qualified charitable organization. It’s generally a nontaxable distribution made by the IRA trustee directly to a charitable organization. A qualifying deduction may also count toward the taxpayers required minimum distribution requirement for the year. Since the distribution is not taxable there will be no charitable deduction either.
• Gift appreciated assets such as stock. Do not gift stock that has decreased in value since acquisition. For this specific situation, it is better to sell the stock, claim a capital loss on your personal tax return and donate the cash proceeds from the sale of the stock to a charitable organization.

Other ways to lower income in 2021 to minimize the tax impact:

• Consider increasing contributions to a health savings account (HSA), provided you are covered by a high deductible health plan, if you have not already maximized the current year contributions.
• Consider increasing your retirement plan contributions to reduce your taxable income, if you have not already maximized the current year contributions.

Charitable Deductions – CARES Act Extensions

For 2021, individuals who do not itemize deductions can claim up to $300 as an above the line deduction for cash contributions made to a qualified organization.  Married couples who file a joint return may claim an above the line deduction up to $600 for their cash charitable contributions.  This was originally only for 2020, but was extended for tax year 2021.

Also for 2021, the CARES ACT temporarily increased the individual AGI limit for cash contributions made to qualified public charities.  Individuals will be able to deduct cash contributions up to 100% of their adjusted gross income (AGI). Please note the pre-CARES AGI limits will return in 2022.

Therefore, if an individual is considering a large cash donation with a possibility of being limited by AGI in tax year 2022, they may want to consider expediting the donation for this year.

Annual gift exclusion and Estate Tax Exemption

The annual gift exclusion remains at $15,000 per person for 2021, but will increase to $16,000 in 2022. Married couples who elect to split gifts can give $30,000 per person in 2021 and $32,000 in 2022. There is no limit to how many donees can receive gifts in a calendar year, and there are no gift tax filing requirements as long as the annual gift exclusion per person limit isn’t exceeded.

There is also an unlimited gift exclusion for payments made on behalf of a donee as medical payments or tuition paid to an educational institution, as long as the payment is made directly to the medical care provider or educational institution.

For 2021, the Unified Gift & Estate Tax Exemption is $11,700,000 per individual.

Capital losses to offset capital gains

Triggering capital loss harvesting from your investment portfolio can help offset any capital gains incurred in the same tax year. If capital gains are expected, it may be a good time to rid your portfolio of assets that are currently worth less than their initial purchase price. Capital gains and losses arising from the sale of business assets follow special tax rules, so it’s important to discuss expectations surrounding those gains and losses with an experienced tax advisor. The limit on deducting capital losses in excess of capital gains remains at $3,000 for tax year 2021 and forward.

Retirement Plans / Required Minimum Distributions

A required minimum distribution (RMD) is an IRS-mandated amount of money that you must withdraw from a tax-deferred retirement account which include: traditional IRA’s, rollover IRA’s, SIMPLE IRA’s, SEP IRA’s and most 401(K) and 403(b) plans or an employer sponsored retirement account each year, starting at age 72.

The CARES ACT temporarily waived the required minimum distributions (RMDs) for all types of retirement plans for calendar year 2020. The waiver expired December 2020 and therefore RMDs will once again be due for the current year.

For 2021:   There is no deferral of RMDs for calendar year 2021.  Therefore, if you were taking RMD’s before 2020 then you need to take them again in calendar year 2021 before year end. RMDs for 2021 are calculated as if the 2020 waiver had not occurred. This means that no make-up 2020 RMDs are required for 2021.

When must you take RMDs:  If you reach age 72 by July 1, 2021 you must take your first RMD, by April 1, 2022, with subsequent RMDs by December 31^st annually thereafter. Keep in mind, if you delay your initial RMD until April 1, 2022 you’ll be responsible for 2 withdrawals that year (one by April 1 and one by December 31), which could result in a larger tax liability.

For additional information on Retirement Plans, see CARES Act changes for Eligible Retirement Plans on the TBC Web page.

Child Tax Credit /Advance Child Tax Credit Payments 2021

The American Rescue Plan raised the maximum child tax credit in 2021 to $3,600 for qualifying children under age 6 and to $3,000 each for children ages 6 through 17. Previously, the credit was worth up to $2,000 per child and 17-year-olds weren’t eligible.

In addition, part of the expansion of the child tax credit was to advance a portion of the 2021 child tax credit to families by sending direct payments to them in 2021. Up to one-half of the total credit was paid in advance monthly payments to families from July to December 2021. The other one-half of the credit is available to be claimed as a credit when filing the 2021 individual tax return.

How is this reported:  The amount that families receive as advance payments will be reconciled to the amount of the child tax credit that they are eligible to claim when preparing the 2021 tax return in 2022. Most families will receive about one-half of their tax credit through the advance payments. In addition, the allowable credit (total credit less amounts previously received) is fully refundable for 2021. This means that eligible families can get it, even if they owe no federal income tax.

Note:  If the advanced payments received are smaller than the actual amount of child tax credit calculated on the 2021 return, the excess amount will be due to families by way of a credit. In the unlikely event that families receive more than the amount being reported as a child tax credit on the 2021 return, families may have to pay the excess back, depending on your income level.

Coronavirus related Distributions (CRD)

The CARES Act allowed eligible individuals to take up to $100,000 from their retirement accounts, without being subject to the 10 percent penalty that typically applies to early withdrawals. December 30th, 2020 was the last day to take a coronavirus-related distribution and Congress didn’t extend this into 2021.

Individuals who took a Covid related distribution in 2020 had the option of deferring tax on the distribution by reporting 1/3 of the total distribution amount as income in tax year 2020, 2021 and 2022 and paying tax on that income in those years. Individuals who chose to defer the reporting of the income over a 3 year period will have additional income to report for tax year 2021.

Also note – eligible taxpayers who took qualified CRDs in 2020, or qualified disaster distributions, will have up to three years to repay all or a portion of the funds to an eligible retirement plan. The amount of repayment reduces the amount of the distribution that would otherwise be taxable in the year of repayment.

If a repayment for a year is more than the includible amount for that year, individuals may either carry the excess forward to another installment year or carry it back to a previous installment year.  If you carry it back, you will need to file an amended return if you have already filed your return for that year to claim a refund.

While there is no requirement to recontribute the funds, there are several good reasons to do so. First, if the distribution is taxable income, repaying all or a portion of it will reduce or eliminate the associated tax liability. Second, even if the distribution is not taxable (certain Roth distributions), repaying the distributed amount(s) would enable those funds to grow on a tax-deferred basis. Remember, the longer those funds sit outside of your retirement account, the longer it may take to reach your retirement planning goals.

Prior to year- end, individuals should consider if recontributing part or all of their CARES Act distribution to an IRA or an eligible retirement plan if feasible given their tax situation for the current year.

Exercising Incentive Stock Options (ISO)

If your company grants you stock options, it simply means they are giving you the opportunity to buy shares of stock in the company at a specific price (the exercise price) during a specific window of time.

When you exercise Incentive Stock Options, you buy the stock at a pre-established price, which could be well below actual market value. The advantage of an ISO is you do not have to report taxable income when you receive a stock option grant or when you exercise that option if you meet specific holding requirements. In addition, if holding requirements are met, the gain on the future sale of exercised options will be subject to preferential capital gain rates.

Important to Note:  When a taxpayer exercises ISOs, and there is no taxable income to report, the ISOs are still counted as income for calculating the Alternative Minimum Tax (AMT).  This additional amount to be reported for AMT purposes could lead to unexpected AMT tax for the individual, particularly if the exercise (without a sale) occurs at year end. It should also be noted that the sale of stock acquired through ISOs also need to be reported for AMT purposes. AMT calculations can get complicated very quickly—so if you are exercising ISOs, speak with your tax advisor first to help understand the tax implications.

These are just some planning ideas to consider for 2021 or 2022 and are general in nature. If you have any questions or need further information please contact your TBC advisor.