Contributions to a Traditional Individual Retirement Account (IRA) may be tax deductible, and earnings can grow tax-deferred until you withdraw them during retirement.
Best if you
- Want to lower your taxable income while saving for retirement
- Can claim your contributions as tax deductions
- Expect to be in a lower income tax bracket when you retire
- Annual contributions may be tax deductible
- Earnings grow tax deferred
- Contributions can be made throughout the current year and up to the federal tax filing deadline
- Take advantage of a wide variety of investment options
Not convinced yet?
Traditional IRAs have unique features that you won't find in any other retirement plan.
Understand the fine print
For a Traditional IRA, the rules for making contributions or withdrawals vary depending on your age.
- If you're younger than 50, you may contribute up to $5,500, or 100% of your taxable compensation for the year, whichever is less.
- If you're age 50 to 70 (not including the year you turn 70½ ), you can contribute up to $6,500, or 100% of eligible compensation, whichever is less.
- If you're younger than 59½, you can make early withdrawals without penalty for first-time home purchase up to $10,000, qualified education expenses, death or disability, unreimbursed medical expenses and/or health insurance if you're unemployed.
- If you're 59½ or older, all withdrawals are allowed without penalty.
Keep tabs on your account
Use U by BB&T®, our customizable online and mobile banking experience, to monitor all your accounts.
- View your BB&T and non-BB&T accounts and balances together for a complete view of your finances
- Skip the phone call and schedule an appointment with your BB&T banker online
- Take control of your finances—see your net worth, get your credit score, evaluate your spending and set financial goals
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What mistakes am I making with my money?
Make sure you're avoiding these pitfalls to create better financial habits.
Everybody wants to have extra cash at the end of the month. Even better if there's enough to add to your savings or to put toward retirement. But in reality, that doesn't always happen.
Here are six common money mistakes you can avoid to create better money habits.
Mistake #1: Spending your whole paycheck
Sometimes it's fun to be a big spender, but you can't do it all the time. Instead, set up automatic withdrawals to a savings account the same day your paycheck goes in. Then, you won't even have to think about saving.
Mistake #2: Buying coffee every morning and eating out too often.
We all have our favorite places to eat, but if you make coffee at home and eat in more often than not, you can easily save a few hundred dollars a month just by living within your means.
Mistake #3: Treating your credit card like another source of income.
Sure, it seems like charging one tank of gas isn't a big deal. But small things add up quickly when you don't pay off your balance every month.
Mistake #4: Having zero financial goals.
Yes, it's important to cultivate friendships, have fun, and to travel. But, think beyond this year. Set some long-term goals and stick to them so you can enjoy what's ahead.
Mistake #5: Failing to meet your 401(k) employer match.
If your boss hands you an extra three percent of your salary, you say "thanks" and take it. That's exactly what happens when your company matches a percentage of what you save toward retirement. So take the maximum your company gives you. Don't leave free money on the table.
Mistake #6: Neglecting to plan for retirement.
Even if your company doesn't have a retirement plan in place, start saving today. The compound interest you earn from starting now can be astronomical compared with what you'll have if you delay.
So avoid these mistakes. Create good money habits now and you'll increase your quality of life today and tomorrow.
Minimize taxes in retirement
Retirement may provide a relief from the daily grind—but not from taxes. As you approach retirement age, take some time to estimate your future tax liability. By doing so, you'll be in a better position to prepare a budget, set up tax withholdings, and structure payment strategies to your best advantage.
Here are some of the most typical income sources and tax implications for retirees.
Social Security income
Did you know that your Social Security benefits can be taxable? If you (and your spouse if you file jointly) have income from other sources, you'll want to pay close attention to the federal income thresholds.
You're likely to pay some tax on your Social Security benefits if you have other sources of retirement income. If you do have other sources, you may be required to include up to 85% of your Social Security benefits as taxable income, depending on the amount of your additional income.
Although most pension income is taxable, certain types—such as government or military pensions—may be exempt from state income tax. Rule of thumb: If the money was deposited into your pension fund before taxes, then you'll have to pay taxes on that money when you withdraw it.
401(k) and IRA withdrawals
Generally speaking, withdrawals from retirement accounts will be taxed in retirement. This includes traditional IRAs as well as 401(k), 403(b) and 457 plans. As with pension income, if contributions were made with pre-tax dollars, you'll have to pay taxes when you withdraw the money.
Roth IRAs and 401(k)s are different. Because Roth contributions are made with after-tax dollars, you won't have to pay taxes on the money upon withdrawal as long as your initial contributions were made 5 years prior to your first withdrawal date.
If you have—or are considering—an annuity as a retirement vehicle, be sure to do your research. Tax laws surrounding annuities can be complicated, and your best distribution strategy depends on a variety of factors.
As a general rule, money invested in an annuity will grow tax-deferred. When you make withdrawals, only the earnings on your contributions will be taxed, not the contributions themselves.
Other investment income
Retirement will not exempt you from paying taxes on capital gains, dividends, or interest income. However, based on your income in retirement, you may qualify for the 0% capital gains tax rate.
With the exception of Roth IRAs, most retirement plans will require you to withdraw a minimum amount at age 70½ or face a penalty. The goal is to keep your taxable income low while still meeting your minimum distribution requirements.