Provided by Taylor McClish
The
IRA that changed the whole retirement savings perspective.
Since the Roth IRA was introduced in 1998, its popularity has soared. It has
become a fixture in many retirement planning strategies because it offers
savers so many potential advantages.
The key argument
for going Roth can be summed up in a sentence: Paying taxes on your retirement
contributions today may be better than paying taxes on your retirement savings
tomorrow.1
Think about it.
Would you rather pay taxes today or wait 10 years and see where the tax rates
end up? With that in question in mind, here are some of the potential benefits
associated with opening and contributing to a Roth IRA.
What
you see is what you get. Roth IRA contributions are made with
after-tax dollars, and any potential earnings on investments within a Roth IRA
are not subject to income tax or included in the account owner's income.
Instead, they accumulate on a tax-deferred basis and are tax-free when
withdrawn from the Roth if the distribution is qualified.2
You
can arrange tax-free retirement income. Roth IRA earnings can
be withdrawn tax-free as long as you are 59½ or older and have owned the
account for at least 5 years. The IRS calls such tax-free withdrawals qualified
distributions.3
Withdrawals
don’t affect taxation of Social Security benefits.
If your provisional income is between $25,000 and $34,000 — or $32,000 and
$44,000 for joint filers — then your Social Security benefits may be taxed if
you take withdrawals before your full retirement age. Luckily, a qualified
distribution from a Roth IRA doesn’t count as taxable income, which may be a
means of avoiding taxation on your social security benefit.4,5
You
have until your tax-filing deadline to make a Roth IRA contribution for a given
tax year. For example, IRA contributions for the 2019 tax
year may be made up until April 15, 2020. While April 15 is the annual
deadline, many IRA owners who make lump sum contributions for a given tax year
make them as soon as that year begins, not in the following year. Making your
Roth IRA contributions earlier gives the funds in the account more time to potentially
grow. Remember, though that Roth IRA contributions cannot be made by taxpayers
with high incomes. In 2019, the income phaseout limit was $137,000 for single
filers and $203,000 for married couples who file jointly.6
Who
can open a Roth IRA? Anyone with earned income (and that
includes a minor).
How
much can you contribute to a Roth IRA annually?
The combined annual contribution limit to all of your traditional and Roth IRAs
is $6,000 for 2019 and 2020 ($7,000 if you're age 50 or older), but income
limits may reduce or eliminate your ability to contribute. To sweeten the deal
even further, you can keep making annual Roth IRA contributions all your life.7
All
this may have you thinking about opening up a Roth IRA.
A chat with the financial professional you know and trust may help you evaluate
whether a Roth IRA is right for you, given your particular tax situation and
retirement horizon.
Taylor McClish may be reached at (503) 239-3060 or Taylor.McClish@cunamutual.com
The Roth IRA offers tax deferral on any earnings in the account.
Withdrawals from the account may be tax free, as long as they are considered
qualified. Limitations and restrictions may apply. Withdrawals prior to age 59
½ or prior to the account being opened for 5 years, whichever is later, may
result in a 10% IRS penalty tax. Future tax laws can change at any time and may
impact the benefits of Roth IRAs. Their tax treatment may change.
This material was prepared by MarketingPro, Inc., and does not
necessarily represent the views of the presenting party, nor their affiliates. This
information has been derived from sources believed to be accurate. Please note
- investing involves risk, and past performance is no guarantee of future
results. The publisher is not engaged in rendering legal, accounting or other
professional services. If assistance is needed, the reader is advised to engage
the services of a competent professional. This information should not be
construed as investment, tax or legal advice and may not be relied on for the
purpose of avoiding any Federal tax penalty. This is neither a solicitation nor
recommendation to purchase or sell any investment or insurance product or
service, and should not be relied upon as such. All indices are unmanaged and
are not illustrative of any particular investment.
Securities sold, advisory services offered through CUNA Brokerage Services, Inc. (CBSI), member FINRA/SIPC, a registered broker/dealer and investment advisor. CBSI is under contract with the financial institution to make securities available to members. Not NCUA/NCUSIF/FDIC insured, May Lose Value, No Financial Institution Guarantee. Not a deposit of any financial institution. CUNA Brokerage Services, Inc., is a registered broker/dealer in all fifty states of the United States of America.
Citations.
1 -
https://www.irs.gov/retirement-plans/traditional-and-roth-iras [1/28/20]
2– https://www.irs.gov/retirement-plans/traditional-and-roth-iras
[1/28/20]
3-
https://www.kiplinger.com/slideshow/retirement/T055-S001-how-retirement-income-is-taxed/index.html
[1/27/20]
4 -
https://www.irs.gov/retirement-plans/traditional-and-roth-iras [1/28/20]
5 – https://www.morningstar.com/articles/852560/20-ira-mistakes-to-avoid
[2/10/20]
6 –
https://www.irs.gov/retirement-plans/traditional-and-roth-iras [1/28/20]