While the benefits are fairly straightforward, there are a few complexities to consider. With some advanced planning, you can further maximize the tax advantages of the Roth IRA for future generations. There are also some mistakes that could wipe out any potential tax benefits.
Are you one of the millions of Americans who have decided to use a Roth IRA to accumulate retirement assets? That may be a wise idea. The Roth IRA has a number of appealing features, including tax-deferred growth and tax-free distributions after age 59½.
Have you used a traditional IRA to save for retirement? You’re not alone. Traditional IRAs are among the most popular retirement savings vehicles. Much of their popularity is due to their unique tax treatment. You can deduct your IRA contributions, and all growth is tax-deferred as long as it stays in the account.
Of course, you can’t avoid taxes on your traditional IRA growth forever. Distributions from your traditional IRA are treated as taxable income. That means that in retirement, your traditional IRA income could create a tax liability and possibly even push you into a higher tax bracket.
Some people delay traditional IRA distributions to avoid the tax hit. However, the latest you can delay your distributions is to age 70½. At that point, you have to begin taking required minimum distributions (RMDs).
If you have a qualified retirement account, like a traditional IRA or 401(k), you probably already know they can provide an effective way to save while you reap the benefits of tax-deferred growth. That means you don’t have to worry about paying taxes while your money is in the account.
The holiday season is here, which means your calendar may be full of family gatherings, office parties and celebrating with loved ones. You also may be eyeing the end of the year for tax and gifting purposes. These final weeks represent one of the peak charitable giving periods as many people look to take advantage of all possible deductions and also support their favorite causes.
Two years ago, Gallup conducted a study in which it asked Americans about their biggest financial concern. The winner? By a wide margin, Americans said they were most concerned that they wouldn’t have enough money in retirement. Nearly 60 percent said they were either very or moderately worried about the issue.1