Retirement Savings Made Simple: Roth IRA vs Traditional IRA for Beginners

 In Ozarks Live

Retirement Savings Made Simple: Roth IRA vs Traditional IRA

Whether you’re setting up your first retirement account or looking for growth strategies, I always suggest starting with the basics. It’s important to know what kind of retirement savings you have and what its strengths are–as well as its weaknesses. Without this essential knowledge, it can be really challenging to start seeing the results that you want.

Extra Info: How to Take Advantage of a Roth IRA

Traditional IRA

Strengths

Here’s one of the major advantages of a Traditional IRA: you can deduct it from your yearly income taxes. Let’s say that you’re in a 15% income bracket and you put away $2,000 into your IRA during the year 2022. When it’s time to file in 2023, you’ll increase your refund by $300. Or reduce the amount you owe by $300.

Another benefit of a Traditional IRA is the concept of systematic savings. If your account is set up to automatically withdraw from a paycheck or bank account each month, then it’s just going to add up effortlessly. Out of sight, out of mind. The maximum you can contribute in a year is $6,000 unless you’re above the age of 50. Once you reach the age of 50, there’s a “catch-up provision” that allows you to contribute as much as $7,000 a year. You can continue to make contributions for as long as you are earning income, there is no age limit.

Drawbacks

  • If you need to withdraw from your retirement savings, there will be a penalty if you’re under the age of 59 ½.
  • A Traditional IRA is 100% taxable when the cash is taken out. I always say, “it’s a bad day when you retire with $1 million in a 401K.” Keeping a large principal is a huge tax liability.
  • Required to take a distribution from your retirement savings at the age of 72. 
  • Beneficiaries must exhaust the account within 10 yrs of receipt.

Roth IRA

Strengths

A Roth IRA is 100% tax-free. Forever. So it’s a great day when you retire with $1 million in your Roth IRA! The principal and growth are tax-free to yourself, your children, your grandchildren, and any beneficiaries you may leave it to.

Drawbacks

  • You’ll need to leave the funds there until you’re 59 ½ to avoid the early withdrawal penalty.
  • It’s not deductible on your yearly income tax return.

Retirement Savings Strategies

Saving for retirement can be tricky, but you don’t have to figure everything out by yourself! We have a great financial team who would love to help you develop some short-term and long-term goals. Here are some of the frequently requested items that we address:

  • IRA Conversion Options
  • Tax Analysis
  • Retirement Planning
  • Estate Planning

Our financial consultations are a no-cost meeting with no obligations.

One of the things we see all the time, very late in the retirement process, is when an individual or couple starts to withdraw their Traditional IRA savings all at once. Sometimes it’s a lot of money, and the tax liability is HUGE when it’s withdrawn in a lump sum. This is a very common mistake that you can avoid if you start planning early. For example, you could make smaller Roth conversions each year and pay smaller tax increments.  All you need to do is talk to a tax professional or someone from our financial team at The Resource Center. We’re happy to offer a free consultation to see if we can help strengthen your retirement accounts!

Contact Us

The Resource Center is a local team in Springfield, Missouri. Collaborating with a local team is an excellent option for anyone who enjoys a personable, one-on-one experience where you know everyone by name. Our mission is to help make your experience easier. We strive for success in everything we do and are excited to talk with you about your situation and case.

RSVP for an Estate Planning Workshop: https://www.resourcecenterinc.com/estate-planning/#rsvp

Phone: 417-882-1800

Email: info@resourcecenter.com

Visit Us: 1304 E. Kingsley St, Springfield, MO 65804

Monday-Friday

8:30 AM – 5:30 PM

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Please remember that converting an employer plan account to a Roth IRA is a taxable event. Increased taxable income from the Roth IRA conversion may have several consequences including (but not limited to) a need for additional tax withholding or estimated tax payments, the loss of certain tax deductions and credits, and higher taxes on Social Security benefits and higher Medicare premiums. Be sure to consult with a qualified tax advisor before making any decisions regarding your IRA.

Neither the firm nor its agents or representatives may give tax or legal advice. Individuals should consult with a qualified tax professional for guidance before making any purchasing decisions.

Investing involves risk, including the potential loss of principal. Any references to protection benefits of lifetime income generally refer to fixed insurance products, never securities or investment products. Insurance and annuity product guarantees are backed by the financial strength and claims-paying ability of the issuing insurance company. The Resource Center, Inc. is an independent financial services firm that utilizes a variety of investment and insurance products. Investment advisory services are offered only by duly registered individuals through AE Wealth Management, LLC, (AEWM).  AEWM and The Resource Center are not affiliated companies. 1319358 – 5/22

 

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