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Here's what you need to know about Roth IRAs

Here's what you need to know about Roth IRAs

Article Date May 2018

If you are building a nest egg for your retirement, don't overlook a Roth IRA (Individual Retirement Account).

Roth IRAs are among the fastest growing retirement savings accounts in this country. According to the Employee Benefit Research Institute (EBRI), Roth IRAs grew by 51.6 percent between 2010 and 2013. Today, more than 21.9 million households have a Roth IRA account. And as younger investors begin saving for their retirement years, many more individuals will be putting their money into a Roth IRA to minimize the retirement tax bite later in their lives.

Unlike a traditional IRA, which allows you to defer paying taxes until retirement, a Roth IRA is taxed up front. That means you won’t have to pay taxes once you are eligible to start taking withdrawals. For investors who anticipate moving into a higher tax bracket during retirement, that can be a game changer. Roth IRAs are also appealing to wealthier investors who want to leave money to their heirs, without leaving them with the burden of taxes.

Roth IRAs offer investors several other important benefits. Your money isn’t subject to mandatory withdrawal rules during your lifetime. This allows you to keep your money in your Roth IRA account during retirement, enabling you to continue growing your account. What’s more, you can work during your retirement years and continue making contributions after the age of 70.5, provided you can report earned income.

One of the great things about Roth IRAs is that they have held up very well to the new tax laws. You can still convert a traditional IRA or 401 (k) to a Roth IRA and you can continue to put up to $5,500 a year into a Roth IRA ($6,500 if you are 50 or older).

Also, you can potentially save money down the road by opening a Roth IRA now, when the tax rates are so low. Tax rates are expected to revert back to the 2017 rates by 2026 so now is a good time to think about opening a Roth account.

Although most of the current news about Roth IRAs is positive, it’s important to know about one downside of the recent changes to the tax laws. If you have a Roth IRA, you can’t undo a conversion through a recharacterization made on or after January 1, 2018.

As more companies incentivize their employees to take control of their retirement planning, you can arrange for an easy way to contribute to your Roth IRA. Tell your employer how much you want to contribute from your paycheck toward your Roth IRA account. Many HR departments also provide educational sessions about how to better plan for retirement.

While Roth IRAs are an ideal saving vehicle for many investors, you may not qualify if you do not meet certain eligibility requirements. Your tax advisor can tell you if you are eligible to open a Roth IRA.

Like any other investment portfolio, you will need to choose the right mix of stocks and bonds for your Roth IRA. Fortunately, there are professionals who can help you make the right investment decisions. Companies such as Synergy Group provide expert advice on which funds may be best for you.

Synergy Group is an independent financial services firm dedicated to helping individuals devise effective retirement strategies utilizing a variety of investment and insurance products that are customized to meet their needs and objectives. For more information on retirement planning, contact Synergy Group at 412-673-7760.

Investment advisory services offered through Global Financial Private Capital, LLC. This material is for informational purposes only. It is not intended to provide tax, accounting or legal advice or to serve as the basis for any financial decisions. Individuals are advised to consult with their own accountant and/or attorney regarding all tax, accounting and legal matters.

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