Retire Richer: Quick Guide to Roth IRAs

Worried about rising tax rates and how they’ll munch on your retirement savings? You’re not alone. With tax rates as unpredictable as a plot twist in a thriller novel, it’s smart to have a plan that keeps your money secure — and growing.

Enter Roth accounts — a hero in the world of retirement saving strategies. Even if you think you know Roth IRAs, we’ve got some clever twists that can supercharge your retirement savings. Let’s break it down:

1. Roth IRAs 101: Most know about making direct contributions to a Roth IRA. Do you earn too much and think Roth’s are not an option for you? Not true! There are other ways to join the Roth party, so read on.

2. The Mega Backdoor Roth: This is like finding a secret passage in your 401(k) that leads to tax-free treasure. If your plan allows, you can stuff more money into your 401(k) after you’ve hit the pre-tax cap, then whisk it away into a Roth IRA or Roth 401(k). Why is this awesome? Because it grows tax-free and stays tax-free when you take it out. Check with your plan or a financial advisor to see if you can do this. The key words you’re looking for in your employer retirement plan is “after-tax 401(k)”, which is different from your Roth 401(k) option.

Think of it like this: 

     – You max out your pre-tax contributions.

     – Your employer chips in their part to your pre-tax retirement account.

     – Then you sneak in more money as after-tax contributions, setting the stage for a Roth conversion.

   – Not every 401(k) lets you do this, so a chat with your advisor is a great idea.

3. Backdoor Roth IRA: Don’t have direct access to a Roth IRA due to your income level? No problem. Pop your money into a Traditional IRA as a non-deductible contribution first, then pivot that into a Roth IRA. Voilà—your money can now grow tax-free and be withdrawn tax-free in retirement. BE WARNED – this only works if you have $0 in any/all IRA accounts on January 1st and $0 in any/all your IRA accounts on 12/31 each year. Work with an accountant or financial advisor to avoid accidentally getting hit with a tax bill.

4. Roth Conversion: Got money in a Traditional IRA? Convert it to a Roth IRA, pay the taxes now (ugh, we know), and then enjoy the tax-free growth and withdrawals later. Especially smart if you think you’ll be in a higher tax bracket when you retire. This is also a good idea when the market has gone down – your account is worth less so your tax bill will be a little smaller on the conversion.

Why bother with all this? Because it gives you options and control over your taxes in retirement. Plus, who doesn’t like the sound of tax-free money?

Before diving into these strategies, though, it’s wise to talk with someone who can guide you — like a financial advisor. A professional will guide you to determine the most effective actions based on your financial situation, resulting in a more prosperous retirement.

So, get planning, and maybe you’ll retire not just richer but happiest on the block!

Disclosure

M & A Consulting Group, LLC, doing business as CAM Investor Solutions is an SEC registered investment adviser. As a fee-only firm, we do not receive commissions nor sell any insurance products. We provide financial planning and investment information that we believe to be useful and accurate. However, there cannot be any guarantees. 

This blog has been provided solely for informational purposes and does not represent investment advice. Nor does it provide an opinion regarding fairness of any transaction. It does not constitute an offer, solicitation or a recommendation to buy or sell any particular security or instrument or to adopt any investment strategy.

Past performance is not a guarantee of future results. Diversification does not eliminate the risk of market loss. Tax planning and investment illustrations are provided for educational purposes and should not be considered tax advice or recommendations. Investors should seek additional advice from their financial advisor or tax professional.