Weekly Access

3 Ways to Boost Roth IRA Savings

By Michael McKeown, CFA, CPA – Chief Investment Officer

Outside of saving in your employer’s retirement plan, there are two types of Individual Retirement Accounts (or IRAs) – Traditional and Roth.  In a traditional IRA, your contributions are tax-deductible now but are taxed on withdrawals in retirement.  In a Roth IRA, your contributions are taxed now but your withdrawals are tax-free.

Depending on your current tax rates and where your rates will be in retirement, it can make sense to build up the balance in one type of account over the other. 

Roth IRAs provide more flexibility in retirement since distributions come out tax-free.  In addition, Roth IRAs do not have required minimum distributions like traditional IRAs. 

Here are three ways to increase your Roth IRA:

1. Contribute to a Roth IRA.  The contribution limit is $6,000 in 2019 with an additional $1,000 catch-up contribution for those over 50.  The income limit for the full contribution is $122,000 for single filers and $193,000 for married filers.  The maximum contribution amount begins to phase out after these levels.

2. A Backdoor Roth contribution.  If you do not have a balance in any traditional IRAs, you can contribute to the traditional IRA and shortly after moving those funds to a Roth IRA.  This gets around the income limits from the first option.  The key is to move your IRAs into your employer’s retirement plan by the end of the year (12/31), so you do not have a balance on IRAs.

3. Roth Conversion. This can make sense if you have a traditional IRA and happen to be in a lower income year than you expect to be in the next few years or in retirement.  You can convert your assets from your traditional IRA to Roth IRA assets by recognizing the income today.  There is not a limit on conversion, it only depends on how much income you want to recognize without bumping up into a higher tax bracket.  Income limits do not apply either.  When you take distributions in retirement, they will be tax-free.

Having both traditional IRA and Roth IRA assets is smart for more flexible spending and tax options during retirement. 

 

Important Information Disclosure

Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Aurum Wealth Management Group, LLC-"Aurum"), or any non-investment related content, made reference to directly or indirectly in this tweet will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this tweet serves as the receipt of, or as a substitute for, personalized investment advice from Aurum. Please remember that if you are an Aurum client, it remains your responsibility to advise Aurum, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. Aurum is neither a law firm nor a certified public accounting firm and no portion of the tweet content should be construed as legal or accounting advice. A copy of Aurum's current written disclosure Brochure discussing our advisory services and fees is available for review upon request. Please note that Aurum does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to Aurum's web site or tweet or incorporated herein and takes no responsibility for any such content. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly.

Sign up to receive our newsletters.

Subscribe ➤