When the Internal Revenue Service leaves a situation vague, sometimes you must guess at the answer to a tax question. The IRS recently issued a clear ruling, though, on a powerful contribution strategy that may change how you use your employer’s retirement plan.
Turning your individual retirement account into a Roth IRA is not a totally black-and-white decision. Understand the rules first, especially relevant tax laws.
Traditional IRAs are largely based on income tax deferral, which means you get a tax break on your contributions in the current year. In retirement, your withdrawals incur income tax.
You retire and don’t even own an alarm clock anymore. Then it hits you: Can you really afford this lifestyle? Did you save enough and invest right? How long will your money last?
This first of two articles presents strategies to ease your worry about outliving your savings.
Plan a bigger portfolio than you think you’ll need. When planning for retirement, never imagine you’re going to get off easy. Think the opposite.
If 20-somethings ask me what to do to get ahead financially, I have a laundry list: create a budget, start investing now, be smart about your taxes and so on. If I absolutely have to narrow it down to one thing, I’d say, open up a Roth individual retirement account.
Beginning in 2013, you could roll over all your standard 401(k) funds to a Roth account in the same retirement plan. But such a move may not be good for you. While the upside of a Roth is tax-free money in the future, converting creates an extra tax burden today.
If your employer sponsors a 401(k) plan for you to participate in, you may also have a Roth 401(k) option. Electing that option depends on your other retirement plans, tax outlook and many other factors.
Saving for retirement means you must sort out countless and confusing options from 401(k)s to individual retirement accounts. How much you make and whether you’re self-employed or have a company-sponsored retirement plan are just a few criteria to determine which to chose. One of your first questions: What’s the difference between a traditional IRA and a Roth IRA?
Many clients at our firm ask this when looking to maximize retirement savings. To understand which option may be better, let’s look at the differences and nuances between the two types of accounts.
Turning your individual retirement account into a Roth IRA can seem great. Pull the trigger too quickly, though, and you may owe cash to the taxman.
For the young, Roth accounts are very smart ways to save money for retirement. That’s because they pay taxes on the contributed money up front, when their income is low, and can enjoy that money later without the Internal Revenue Service taking another slice. Traditional accounts defer taxes until retirement, when folks usually are in a much higher tax bracket than they were when starting out in life.
The proposed U.S. 2015 budget contains, predictably from President Barack Obama, tax breaks for working families and curtained breaks for the rich. The nearly $4 trillion budget proposal also seeks potential changes, good and bad, to your individual retirement accounts.