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Funding Your Retirement: Some IRA Choices to Consider

Funding Your Retirement: Some IRA Choices to Consider

May 29, 2019

It's extremely important that we all take our retirement into our own hands. The concept of not preparing and relying on a government-sponsored retirement is not the best plan. Financial woes combined with the fact that the U.S. population is continuing to age, means that there are fewer working-aged people remaining to contribute to our social security systems. On a positive note, strong retirement savings can not only help you, but it could potentially help your family and loved ones.

With today's retirement challenges, more people are using retirement vehicles as a healthy way to help family members. Some experts agree that consistently funding your retirement plans is a healthy activity. Funding retirement accounts at younger ages many times leads to a better funded and more comfortable financial situation at your retirement.

  • Traditional IRAs: A traditional IRA (Individual Retirement Account) is a way in which individuals can save for retirement and receive tax advantages. Traditional IRAs come in two varieties: deductible and nondeductible. The contributions you make to a traditional IRA may be fully or partially deductible, depending on your circumstances (i.e. taxpayer's income, tax-filing status and other factors) and generally, amounts in your traditional IRA (including earnings and gains) are not taxed until they are distributed.
  • Roth IRA: Unlike traditional IRAs which for some taxpayers can be tax deducted, you cannot deduct contributions to a Roth IRA.
  • Spousal IRA: If your spouse doesn't work, they can still have a spousal traditional or Roth IRA. This allows non-wage-earning spouses to contribute to their own traditional or Roth IRA, provided the other spouse is working and the couple files a joint federal income tax return.
  • Custodial Roth IRA: Many children work before they reach age 18. The income they earn makes them eligible to contribute to a Roth IRA, which can be an extremely smart move for teenagers. If you're the parent of a child who has earned income, a Custodial IRA can be a great way to teach the value of saving and investing.
  • "Back-door" Roth IRA: A Backdoor Roth IRA is a strategy for some higher income earners to participate in Roth IRAs. It is a way for higher income earners to put money into a traditional IRA and then roll that into a Roth IRA, getting all the benefits. If you choose to attempt a backdoor Roth IRA conversion, please consult a knowledgeable tax planner prior to doing so because the rules for Roth conversions can be complicated.

If you have an interest in further discussing funding your retirement plans, please call us for a complimentary consultation. This is an area where a highly informed financial advisor can help you make an educated and calculated decision. As with all tax sensitive decisions, you should always consult with your financial advisor and tax professional to help avoid tax ramifications.

For complete rules on IRA's (including who qualifies), please visit Publication 590a or consult with a qualified professional.

Please contact our office at (908) 379-2706 if you are interested in our full report, Funding Your Retirement: Some IRA Choices to Consider you would like to come in for a complimentary, no obligation financial check-up.

Westfield Financial Planning is not associated with The Academy of Preferred Financial Advisors, Inc. This article is for informational purposes only. This information is not intended to be a substitute for specific individualized tax, legal or investment planning advice as individual situations will vary. For specific advice about your situation, please consult with a lawyer, tax or financial professional. The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Contributions to a traditional IRA may be tax deductible in the contribution year, with current income tax due at withdrawal. Withdrawals prior to age 59 ½ may result in a 10% IRS penalty tax in addition to current income tax. Traditional IRA account owners should consider the tax ramifications, age and income restrictions regarding executing a conversion from a Traditional IRA to a Roth IRA. The converted amount is generally subject to income taxation. 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. IRA's and ROTH conversions require understanding of specific rules, for complete rules on IRA's (including who qualifies), please visit www.IRS.GOV Publication 590a or consult with a qualified professional. Source: Contents Provided by The Academy of Preferred Financial Advisors, Inc.; Reviewed by Keebler & Associates, Inc @ 2019