Take advantage of your retirement account options

Except in the case of the Roth IRA, the earnings in retirement accounts are technically tax-deferred, not tax-free. However, funding them as soon as possible allows you to save and defer more taxes. You benefit by keeping more funds invested for a longer period of time.  You also save taxes since most people are in higher tax brackets in their working years than they are in retirement.

 When deciding where to put your retirement dollars this year, it’s hard to beat a Roth IRA because of the availability of tax-free distributions if you satisfy certain conditions, the lack of mandatory distributions at age 70½, and the option of withdrawing your contributions tax and penalty free at any time.  However, if you’re eligible to participate in a 401(k) or SIMPLE IRA plan, you’ll probably want to contribute enough to that plan to receive a full employer match before contributing to a Roth IRA. Some employer plans now allow Roth contributions. You should consider that especially if you will be in a similar tax bracket in your retirement years.

Consider A Roth Conversion:

Converting regular retirement accounts into Roth IRA's should be evaluated to take advantage of the non taxable status of Roth IRA's and to avoid the required minimum distribution rules for regular retirement accounts.  Conversions may be especially beneficial if you expect to be in lower tax brakets in the current  year than you will be in in retirement years, and if you can pay the resulting tax out of non-retirement account funds.  We can help you evaluate the pros and cons of a conversion for your specific situation.

If you do not have an IRA account and are ineligible for Roth IRA contributions because your income exceeds limitations, ($167,000 Married or $105,000 single), you can make a non-deductible IRA contribution and then roll it over to a Roth.  Since your contribution was not deductible, the conversion is non taxable.