IRA’s can be a powerful tool for long-term financial goals.
Growth from interest compounds year-over-year with the taxes deferred. So, you don’t have to pay tax on interest earned each year! Over an extended period of time, this tax-deferred compounding, can make significant difference in overall retirement savings. And, depending on which kind of IRA you choose, you can defer taxes on money going in now or have tax free withdrawal of the money coming out later if Roth rules are met.
Types of IRA’s for Individuals
Traditional IRA: Pre-Tax Contribution
For clients seeking tax-deferral on contributions and a tax deduction.
The basics:
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Contributions may be made regardless of income — deductibility may be limited based on AGI
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10% IRS tax penalty applies to withdrawals of both contributions and earnings if made prior to age 59 ½, with certain exceptions
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Withdrawals are taxed as ordinary Income
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Required Minimum Distributions (RMD’s) must start at age 72
May work well for a client who…
+Needs a tax deduction
+Wants to save in a tax-deferred vehicle but is okay with paying taxes on withdrawals in retirement
+Anticipates their income tax bracket at retirement to be lower than their current bracket
+Has maxed out contribution to their employer-sponsored plan, has income below the deductibility limits, and would like to save more
+Does not have access to an employer-sponsored retirement plan
Roth IRA Post-Tax Contribution
If you’re seeking tax-free withdrawals in retirement.
The basics
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Withdrawals are tax free if Roth has been in place for fixe years and one of the following:
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Age 59 ½
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Disability
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First time home purchase up to $10,000
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Client may contribute at any age
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Contributions may be made if income limits are not exceeded
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There are no Required Minimum Distributions (RMD’s)
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10% IRS tax penalty applies to withdrawals of earnings only if made prior to age 59 ½ with certain exceptions
May work well for a client who…
+Wants tax-free withdrawals at retirement
+Anticipates their income tax bracket at retirement to be higher than current bracket
+Have maxed out contribution to their employer-sponsored plan and would like to save more
+Do not have access to an employer-sponsored retirement plan
FamilyTreeFinancialGroup.com
(904) 657-0896
