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Colin OShea

January 17 , 2017

Investment Basics: To Roth or Not to Roth?

Investment Basics: To Roth or Not to Roth?

More than 20 million Americans have already made the decision to take advantage of a Roth individual retirement account (IRA). Isn’t it time you checked out the Roth IRA’s distinct advantages and how a Roth — or traditional — IRA can help you prepare for retirement? 


You may be eligible to open and contribute to a Roth IRA even if you’re covered by an employer’s retirement plan. For 2016, eligibility is phased out with adjusted gross income between $117,000 and $132,000 (single) and $184,000 and $194,000 (married filing jointly).


No Tax on Earnings


One of the most attractive features of a Roth IRA is that if all requirements are met, you won’t have to pay federal income tax on your IRA earnings, even when you withdraw them. Among these requirements: The earnings must remain in your Roth IRA for a five-year period before you withdraw them. If you don’t meet the requirements, you’ll have to pay income tax on any earnings you withdraw, along with a 10% early withdrawal penalty if you’re younger than age 59½. Check with your tax advisor. You also pay no tax on withdrawals of your contributions because they’re taxed before you make them. The longer you have until retirement, the more you may benefit from a Roth IRA’s tax-free potential growth. With a traditional IRA, earnings accumulate tax deferred. You have to pay tax when you withdraw them.


No Mandatory Distributions


Unlike a traditional IRA, a Roth IRA requires no mandatory distributions during your lifetime. Your account can potentially grow tax free for as long as you want it to. Your designated beneficiary generally will have to take required minimum distributions based on his or her life expectancy.


A Tax Deduction with a Traditional IRA


If your employer doesn’t offer a retirement plan, a traditional IRA may be a good choice. Generally, you can deduct contributions made to a traditional IRA if neither you nor your spouse is covered by a retirement plan at work. If either you or your spouse is eligible to participate in an employer’s plan, the deduction is phased out when AGI reaches certain levels.


There’s Still Time


Talk with a Security National Bank Wealth Management financial professional about which IRA would be best for you. You have until April 18, 2017, to open and contribute up to $5,500 — $6,500 if you’re age 50 or older — to an IRA for 2016.


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