This article is original content written by Manchester, CT Financial Advisor Thomas Scanlon, CFP®, CPA
To be eligible for a Roth IRA you need to have earned income from wages or from self-employment. Additionally higher income earners are not eligible. Married couples filing a joint return with a modified adjusted gross income of less than $228,000 for 2023 are eligible. Investors under age 50 can contribute up to $6,500 annually. Investors over age 50 can contribute up to $7,500 annually. To determine if you are eligible for a Roth IRA consult your CPA.
1) Tax-Free Growth
Unlike an IRA there is no income tax deduction with a Roth IRA. However if the Roth IRA account is open at least five years and distributions do not begin until after age 59 1/2 then all of the distributions are tax-free. Not tax deferred, tax-free.
2) No Required Minimum Distribution
Unlike an IRA, there are no Required Minimum Distribution (“RMD”) rules during the owners and surviving spouse’s lifetime. These rules require IRA and 401(k) plan owners to begin taking distributions from these accounts when they turn 73. The IRS has table that requires these investors to take the funds out over their life expectancy. Non-spousal beneficiaries (like children or grandchildren) will be required to take out their distributions within 10 years. However, if the inherited Roth IRA met the simple requirements of the account being open for at least five years and the beneficiary being over age 59 1/2 then all of the earnings would be tax-free.
Additionally there is no age limit on when you can contribute to a Roth IRA. As long as you have earned income you can contribute to the Roth IRA at any age.
3) You Are on Your Own
‘Back in the day’ folks could rely on the Company, the Government and the Union. Employees would go work for the Company and spend their entire career there, getting a steady paycheck. In retirement you collected a pension as a reward for your years of service. The Government took care of you with your Social Security benefit. The Union took care of its members.
This has changed, just a wee bit. Employees constantly change jobs. Except for federal, state and municipal workers, most employees won’t be seeing a pension. Most companies terminated them and adopted a 401(k) plan. What can you say about Social Security? It is a big cigar box with a bunch of IOU’s. Union membership continues to decline.
What will you use for your retirement plan? This will consist of whatever you can pull together from your 401(k) Plan, IRA / Roth IRA and other savings.
Consult your financial advisor to to determine if funding a Roth IRA should be done in connection with your overall financial plan.
The information contained in this report does not purport to be a complete description of the securities, markets or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the forgoing material is accurate or complete. Any opinions are those of Thomas F. Scanlon, CPA, CFP and not those necessarily those of RJFS or Raymond James. Expressions of opinion are as of this date and are subject to change without notice. Tax preparation and accounting services are provided by Borgida & Company, P.C., not as a service of Raymond James. You should discuss your tax or legal matters with the appropriate professional. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Past Performance is not indicative of future results. All investing involves risk.