Retirement accounts

The Roth IRA will probably be a more effective tool if you don't qualify for tax-deductible contributions to a traditional IRA. However, if you can deduct your traditional IRA contributions, the choice is more difficult. The Roth IRA may make more sense if you want to minimize taxes during retirement and preserve assets for your beneficiaries. But a traditional deductible IRA may be a better tool if you want to lower your yearly tax bill while you're still working (and potentially in a higher tax bracket than you'd be in after you retire).

You can have both a traditional IRA and a Roth IRA, but your combined annual contribution to all your IRAs cannot be more than $7,000 for 2024 ($8,000 if you’re age 50 or older).

Your Truist Wealth advisor can help you choose the right type of IRA for you.

Practically anyone can open and contribute to a traditional IRA. As of 2020, there’s no age limit on making regular contributions. You can contribute the maximum allowed each year as long as your taxable compensation for the year is at least that amount. If your taxable compensation for the year is below the maximum contribution allowed, you can contribute only up to the amount you’ve earned.

Your contributions may be tax deductible (pretax) on your federal income tax return—lowering your taxable income for the year. If neither you nor your spouse are covered by a 401(k) or other employer-sponsored plan, you can generally deduct the full amount of your annual contribution. If one of you is covered by such a plan, your ability to deduct your contributions depends on your modified adjusted gross income (MAGI) and your income tax filing status.

Any portion of a distribution that represents deductible contributions is subject to income tax because those contributions were not taxed when you made them. Any portion that represents investment earnings is also subject to income tax because those earnings were not previously taxed either. Only the portion that represents non-deductible, after-tax contributions (if any) is not subject to income tax. In addition to income tax, you may have to pay a 10% early withdrawal penalty if you're under age 59 ½, unless you meet one of the exceptions.

If you want to keep deferring taxes, you can leave your funds in the traditional IRA, but only until April 1 of the year following the year you reach age 72. That's when you have to take your first required minimum distribution from the IRA. After that, you’re required to take a distribution by the end of every calendar year until you die, or your funds are exhausted. The annual distribution amounts are based on a standard life expectancy table. You can always withdraw more than you're required to in a given year. However, if you withdraw less, you'll be subject to a 50% penalty on the difference between the required minimum and the amount you actually withdrew.

As of 2020, there’s no age limit on making regular contributions. But not everyone can set up a Roth IRA or qualify for all its advantages. In addition to having enough taxable compensation, your ability to contribute to a Roth IRA in any year depends on your modified adjusted gross income (MAGI) and your income tax filing status:

• If your filing status is single or head of household, and your MAGI for 2023 was $138,000 or less, you can make a full contribution to a Roth IRA. Your Roth IRA contribution is reduced if your MAGI for 2023 was more than $138,000 and less than $153,000, and you can't contribute at all if your MAGI was $153,000 or more.
• If your filing status is married filing jointly or qualifying widow(er), and your MAGI for 2023 was $218,000 or less, you can make a full contribution to your Roth IRA. Your Roth IRA contribution is reduced if your 2023 MAGI was more than $218,000 and less than $228,000, and you can't contribute at all if your MAGI was $228,000 or more.
• If your filing status is married filing separately, your Roth IRA contribution is reduced if your MAGI was less than $10,000, and you can't contribute at all if your MAGI was $10,000 or more.

Your contributions to a Roth IRA are not tax deductible—you can only invest after-tax dollars. But the good news is your withdrawals will be completely tax-free (including both contributions and investment earnings) if you’ve held the Roth for a minimum of 5 years and meet one of the following criteria:

• You’ve reached age 59 ½ by the time of the withdrawal
• The withdrawal is made because of disability
• The withdrawal is made to pay first-time home-buyer expenses ($10,000 lifetime limit)
• The withdrawal is made by your beneficiary or estate after your death

Qualified distributions will also avoid the 10% early withdrawal penalty. This ability to withdraw your funds with no taxes or penalties is a key strength of the Roth IRA. And remember, even nonqualified distributions would only be taxed (and possibly penalized) on the investment earnings portion of the distribution, and then only to the extent that your distribution exceeds the total amount of all contributions you’ve made.

Another advantage of a Roth IRA is that there are no required distributions after age 72 or at any time during your life. You can put off taking distributions until you really need the income. Or you can leave the entire balance to your beneficiary without ever taking a single distribution. Also, as long as you have taxable compensation and qualify, you can keep contributing to a Roth IRA after age 72.

A self-directed IRA is an IRA held by a custodian that allows investment in a broader set of assets than most IRA custodians permit. Custodians for self-directed IRAs may allow individuals to invest retirement funds in “alternative assets” such as real estate, precious metals and other commodities, crypto assets, private placement securities, promissory notes, and tax lien certificates. Investments in these kinds of assets have unique risks that investors should consider. Your Truist Wealth advisor can provide additional insight.

You can move funds from one IRA to the same type of IRA with a different financial institution (for example, traditional to traditional, Roth to Roth). No taxes or penalty will be imposed if you arrange for the old IRA trustee to transfer your funds directly to the new IRA trustee.

The other option is to have your funds distributed to you first and then roll them over to the new IRA trustee yourself. You'll still avoid taxes and penalties as long as you complete the rollover within 60 days from the date you receive the funds. The IRS has the authority to waive the 60-day rule for rollovers under certain limited circumstances, such as proven hardship.

You may also be able to convert funds from a traditional IRA to a Roth IRA. It’s a complex decision, so be sure to consult your tax advisor, who can help you weigh the benefits of shifting funds vs. the tax consequences.

When it comes to rolling over savings from an employer-sponsored plan you have options. You can roll it over to an IRA. You could leave it with the employer plan or you could cash out. Before transferring your retirement assets to a Truist Investment Services, Inc. IRA rollover be sure to consider investment options and services, fees and expenses, withdrawal options, required minimum distributions, and tax treatment of each option and how they align with your financial needs and retirement plans.

Apart from traditional IRAs or Roth IRAs, a backdoor Roth IRA is a strategy used by high-income earners who exceed the income limits of a Roth IRA. The strategy involves converting a traditional IRA to a Roth IRA.

This is a legal strategy that allows you to contribute funds to an IRA and then roll them over to a Roth IRA. You can also convert an entire traditional IRA to a Roth IRA.

In addition to legally circumventing traditional IRA income limits, there are no required minimum distributions (RMDs) associated with a Roth IRA. And backdoor Roth contributions can result in significant tax savings over time because, unlike with traditional IRAs, Roth IRA distributions aren’t taxable.

Backdoor Roth IRAs enjoy the same advantages as all Roth IRAs—taxes are paid upfront on your converted pretax funds. Everything after that is tax-free. This can be especially beneficial if you expect (a) tax rates to rise and/or (b) your taxable income to be higher in the future.