Erickson Financial Solutions Blog
Roth IRA – Better than Sliced Bread (See 1-minute video: Roth IRA, Contribute or Convert.)
The tax code as few taxpayer friendly provisions, but the creation of the ROTH IRA is the exception. A ROTH IRA is a type of account into which a taxpayer can contribute after-tax dollars and then never pay taxes on the growth or withdraws. Yep, no more taxes.
Not having to pay taxes can be a huge advantage especially when the growth is extended over many years. It also permits you to better control your income program in retirement.
There are only two ways to get money into these accounts. The most common way is a direct contribution from savings/checking account. But do note that the amount you can contribute varies whether under or over 50 years of age. And there is a maximum regardless of age which changes from time-to-time. Further, you can not contribute more than you earn such as from a job. Earnings from investment do not count.
The second method is to convert assets already in an IRA or qualified retirement plan from work to a ROTH IRA. There are no limits on how much can be converted. That’s the good news. The sad news is that to make the conversion, every dollar converted is considered income and subject to income taxes. So, it might be smart to convert a portion each year rather than all at once to avoid bumping you into a higher tax bracket.
Investigate the ROTH IRA, and it may be better than sliced better for you.
This video and text is for information use only and is based on information believed to be true. Much of the information is readily available, but some is drawn from Advisor Products and FA Client articles. The reader acts on these ideas at their discretion and should consider consulting an accountant, financial advisor, or attorney. No promise is made that an idea or concept is appropriate or would work well for the reader. This is not an offer to provide legal advice or act as an attorney.