One way or another, Individual Retirement Accounts will be involved in retirement planning these days. Whether you want to roll over a 401(k), time your withdrawals optimally, or make catch-up contributions, your IRA strategy may be one of the key components of your income strategy. However, there is a little-known timing strategy to get more out of a Roth IRA.
What is the Roth IRA and When is it Useful?
Roth IRAs are governed by certain rules that allow you to withdraw funds tax-free after a certain age and time period. Roth IRAs are funded with post-tax dollars, so your contributions are still considered income, whereas Traditional IRAs reduce your contributions to your taxable income for the current year, and they are taxed as regular income when you withdraw them. You should also be aware that there are contribution limits that reset each year.
An IRA may be used as part of an income strategy to control taxable income and tax brackets over the course of your retirement timeline.
Why Open a Roth at the End of the Year?
You can withdraw from a Traditional IRA anytime as long as you are 59.5 years old. What if you don’t already have a Roth IRA and want to take advantage of its tax-free withdrawal benefits? You’ll probably consider opening a Roth IRA… However, you cannot withdraw penalty-free from the account unless you are 59.5 years old and have held it for five calendar years. Furthermore, your contributions will be subject to IRA contribution limits for that year. 
Here’s what you need to know: If you’re thinking about establishing a Roth IRA for whatever reason, do it before December 31st, and max out your yearly contributions for the present year… Then, do it again after January 1st! This way, you can max out your contributions for both years since your account will have been established for the current year and the next. You can withdraw from the IRA after four years rather than five if you rush in on December 31st, and you may contribute the maximum for both years of the current year, allowing you to fund your account faster.
Your IRA strategy may be crucial to your retirement plan, but there is no one right way to do it. Your strategy is unique to you and your financial situation, so if you have questions about if a Roth IRA can work for you, sign up for a complimentary review with us today.
Securities and advisory services offered through Royal Alliance Associates, Inc. (RAA), member FINRA/ SIPC. RAA is separately owned and other entities and/or marketing names, products or services referenced here are independent of RAA. RAA is not affiliated with Lone Beacon
Neither the named representative nor the named Broker/Dealer or Investment Advisor gives tax or legal advice.
Fixed index annuities are designed to meet long-term needs for retirement income. Early withdrawals may result in loss of principal and credited interest due to surrender charges. Distributions may be subject to ordinary income tax and, if taken prior to age 59 ½, an additional 10% federal tax. An income rider or benefit (sometimes called Guaranteed Lifetime Withdrawal Benefits, or GLWB) is an additional feature available with some annuities and generally optional and come with additional cost. Income benefits are designed to provide income options above and beyond the standard annuitization or free withdrawal features in annuities. All contract gains beyond the CAP rate are surrendered to the insurance company to pay for the expense of the product.
The views expressed are not necessarily the opinion of Royal Alliance Associates Inc, and should not be construed directly or indirectly, as an offer to buy or sell any securities mentioned herein. Individual circumstances vary. Investing is subject to risks including loss of principal invested. No strategy can assure a profit against loss.