William Penn Life, 2019 (54. évfolyam, 2-5. szám)
2019-05-01 / 5. szám
Moneywise with Bob Bisceglia, National Sales Director A COUPLE OF ISSUES AGO, I wrote about the benefits and contribution limits of the traditional IRA. This month, I'd like to focus on the Roth IRA and give you some reasons why you may want to consider adding a Roth to your retirement plan. Do you want to lower your taxes and increase your income during your retirement? Then a Roth IRA, with its tax-free growth and potentially tax-free withdrawals-for both you and your heirs-may be the way to go. One important note before we begin: not everyone can contribute to a Roth IRA because of IRS-imposed income limits. If your income is over the limit, you may still be able to contribute by converting existing assets from a traditional IRA and other qualified retirement savings plans to your Roth IRA. But, I'll discuss income limitations in a bit. Benefit #l: Your money grows tax-free and withdrawals may be tax-free, too. Your contributions to a Roth IRA are made with "aftertax" money, that is money that has already been taxed. While there is no tax deduction for contributing to a Roth IRA, any growth or earnings from your account and any distributions you take will be free from federal income tax, with a few exceptions. A distribution for a Roth IRA is taxfree (and penalty-free) provided that the five-year aging requirement has been met and at least one of the following conditions is also met: • you attain age 59 Vi • you become disabled • you make a qualified first-time home purchase ($10,000 lifetime limit); or • you die. Benefit #2: No minimum distributions required. Unlike traditional IRAs and other qualified plans, Roth IRAs do not have a minimum distribution requirement for the original owner. You can let your money grow as long as you'd like and never be forced to begin taking distributions. If you don't need your distributions for living expenses, this benefit may enable you to pass more of your retirement savings on to your heirs. Which leads us to.... Benefit #3: Leave tax-free money to your heirs. In many cases, Roth IRAs have legacy and estate planning benefits, but you'll need to consider the pros and cons, which can be quite complex. Be sure to check with an elder law or estate planning attorney before attempting to use your Roth IRA for estate planning purposes. While required minimum distributions are required for inherited Roth IRAs, those required distributions generally remain tax free to the beneficiaries and heirs. Benefit #4: Roth Conversions. You can convert part or all of your traditional IRA (or any other qualified plan) to a Roth IRA. While converting a traditional IRA and other qualified accounts to a Roth IRA might make sense if you want to take advantage of Should you have a Roth IRA? the benefits of the Roth IRA (mainly the benefits covered in numbers 1, 2 and 3), it's equally important to realize that you will pay full taxation on the converted amount in the year the conversion occurs. Benefit #5: Income and tax flexibility in retirement. Since you have already paid the taxes on the money you deposited into your Roth IRA, as long as you follow the rules, you will be able to take your money (and earnings) out tax-free. This allows you to mix your withdrawals between your traditional IRAs, 401 (k) plans and other retirement plans to better manage your overall tax liability. You could, for example, take withdrawals from your traditional IRA until your taxable income reaches the top of a bracket and then take the additional money needed out of your Roth IRA. Benefit #6: Hedge against future tax hikes. Will tax rates go up in the future? There's no way to know for sure, but the top federal income tax rate is currently below its historical high level. If you think they may go up again, then a Roth IRA might make sense for you. Benefit #7: Access to your deposited funds at any time. A Roth IRA enables you to take 100% of your contribution back out at any time-and for any reason-with no 4 0 May 2019 0 WILLIAM PENN LIFE
