In: Accounting
Social Security is part of the retirement plan of almost every American worker.When you work and pay Social Security taxes, you earn “credits” toward Social Security benefits. The number of credits you need to get retirement benefits depends on when you were born. If you were born in 1929 or later, you need 40 credits (10 years of work).If you stop working before you have enough credits to qualify for benefits, the credits will remain on your Social Security record. If you return to work later, you can add more credits to qualify. We can’t pay any retirement benefits until you have the required number of credits.
A tax shelter is a tax minimization strategy , used by individuals or organizations to minimize or decrease their taxable incomes and tax liabilities. Tax shelters are also available in the form of investment and retirement accounts which shelter income from taxes. The tax shelter provided through these accounts serves as an incentive to income earners to save for retirement. Income contributions made to a 401(k), 403(b), or Individual Retirement Account (IRA) plan will not be taxable until the individual retires. money that would have been taxed by the IRS accrues interest and earnings in the account until the funds are drawn. . For individuals who expect to be in a higher income tax bracket by the time they retire, the Roth IRA and Roth 401(k) provide a way to shelter income from higher taxes. With these investment accounts, the contributed income is taxed before entering the accounts, but no tax applies when the funds are wthdrawal
charecteistics | Traditionanal IRA | Roth IRA |
eligibility |
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contribution | contribution are made with pre tax doller , earning tax deffrered , means you pay tax on withdrawal | contribution are made with after tax doller , you pay no tax on withdrawal |
maximum contribution | contribution limit to $5500 maximum across all IRA and Roth IRA plans $6500 for employee 50 or over | contribution limit to $5500 maximum across all IRA and Roth IRA plans $6500 for employee 50 or over |
distribution | distribution must begin no later than age 701/2 ,unless still working .10% federal penalty tax on withdrawal before age 591/2unless exception applies | no requirment to start taking distribution while owner is alive . 10% feferal penalty tax on withdrawals of earning before age 591/2unless an exception applies |
contribution deadline | april 15 of the following year for any given tax year | april 15 of the following year for any given tax year |