Individual Retirement Account (IRA)
This is an excellent tool for retirement savings. Unlike most investments, depending on the type of IRA you choose, contributions may be tax deductible and will grow either tax-deferred or tax-free.
Coverdell Education Savings Account (ESA) (formally Education IRA)
An ESA is a great way for parents, grandparents and others to help meet the rising costs of a student’s education. Tax law changes have made IRAs and ESAs even better.
Contribution Deadlines
Traditional IRAs, Roth IRAs and Coverdell Education Savings Accounts must be opened and/or funded by the April 15th tax filing deadline to receive your tax deductions. A filing extension won’t buy you extra time.
Traditional IRA
The contribution limits for individual retirements accounts (IRAs) for 2024 tax year is $7,000. If you are 50 and older, you can contribute an additional $1,000 for a total of $8,000. The IRS may adjust annually for inflation, in $500 increments. The annual limit applies to any combination of IRA plans other than the ESA. Contributions are fully tax deductible if you are not an active participant in an employer retirement plan. Investments grow on a tax-deferred basis. Distributions must begin at age 70 1/2. Earnings are taxed only upon withdrawal.
Roth IRA
As long as you have earned income, you can establish and contribute to a Roth IRA even after age 70 ½. While contributions are not tax deductible, contributions and earnings can be withdrawn tax-free, and unlike traditional IRAs, you are not required to begin taking required minimum distributions after reaching age 70 1/2. By converting your traditional IRA to a Roth IRA, you can enjoy tax-free withdrawals. However, the amount you convert is subject to income tax now. Contribution limits for a Roth IRA are the same as the traditional IRA.
Education Savings Accounts
A Coverdell Education Savings Account (ESA) is a trust account created by the U.S. government to assist families in funding educational expenses for beneficiaries who must be under the age of 18 when the account is established. The age restriction may be waived for special needs beneficiaries. While more than one ESA can be set up for a single beneficiary, the total maximum contribution per year for any single beneficiary is $2,000.