Do You Know These IRA Tax Facts? (No Peeking!)

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According to Fidelity’s latest data, the average individual retirement account balance dipped 4% during the third quarter of 2023, falling to just shy of $110,000.

Despite the quarterly drop, this amount represents an 8% increase from a year ago and a 28% increase from 10 years ago.

As Kevin Barry, president of Workplace Investing at Fidelity Investments, points out, the majority of Americans polled by the firm say they are working hard to meet both their short-term financial goals and their longer-term savings targets, especially those pertaining to retirement. The savings data shows that IRAs are one of the most important tools in that effort.

While embraced broadly by working Americans and their financial advisors, the IRA is also a complex instrument with a substantial set of tax rules, prohibited transactions, distribution requirements and other features that can easily cause confusion.

What’s more, making mistakes in the ongoing management of an IRA can have catastrophic consequences, including the disqualification of the account and the application of substantial taxes and penalties.

According to Barry and other experts, advisors with a deep base of knowledge about IRAs are highly valued by their clients, but it can also be difficult to keep up with all the ongoing rule changes and other factors that affect the oversight of IRAs from a tax perspective.

See the accompanying slideshow for a 10-question quiz about IRAs and their treatment under the Internal Revenue Code. Only the tax-savviest advisors will ace the test, but everyone can benefit from the refresher.

Slides: Credit: Chris Nicholls/ALM

Want more tax-focused insights? Find current and accurate answers to your tax questions with Tax Facts. 

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