A Roth IRA Can be a Powerful Retirement Tool

As an investor, there are always choices to make: pros and cons to weigh with your adviser. Deciding on your retirement savings vehicles is no different. There are so many options, but a Roth IRA, if you qualify, can really help with your retirement savings if you follow the rules.

1. Make Money, But Not Too Much

The IRS doesn’t allow individuals making more than $129,000 to contribute. Joint filers can earn up to $191,000 and still partially qualify. Keep in mind, though, that these are the maximums, and there are always exceptions. Be sure to consult your adviser and a tax professional before moving forward.

2. Stay Within the Lines

If you qualify, you can sock away up to $5,500 if under 50; $6,500 if over 50. You have until tax day (no extensions) to do so for the prior year.

3. Make Smart Withdrawals

Roth IRA distributions are entirely tax-free—if you play by the rules. They can be complex, with different provisions covering your initial contribution and your earnings, but a knowledgeable financial or tax professional can walk you through them. Although penalties apply to withdrawals made before age 59½ or within five years after you open your Roth, they can be avoided in certain circumstances (e.g., disability, first-time home purchases or higher education).

4. Lengthen Your Roth’s Life

Named beneficiaries can inherit your Roth IRA tax-free. Your heirs can gradually withdraw the money, while the rest continues to grow tax-free throughout their lifetimes. That means choosing a younger beneficiary may be a smart move, as it lengthens the amount of time the money can remain in the inherited Roth.

5. Convert

Conversion means taxpayers at any income level can place tax-qualified assets (typically from a 401(k) or traditional IRA) into a Roth IRA. You’ll have to include the amount of previously deductible contributions to the converted IRA as taxable income, but since Roth IRA income is tax-free, it might be worth paying the tax now to save more later. This may make sense particularly for those in higher tax brackets. You’ll pay taxes after the conversion, but you’ll eventually receive a portion of your retirement income tax-free. A gradual conversion may also make sense for some. It’s a good idea to consult your financial adviser to see if a conversion would be in your favor. 

Unless certain criteria are met, Roth IRA owners must be 59½ or older and have held the IRA for five years before tax-free withdrawals are permitted. Converting a traditional IRA into a Roth IRA has tax implications. Investors should consult a tax adviser before deciding to do a conversion.

Please note, changes in tax laws may occur at any time and could have a substantial impact upon each person’s situation. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional.

W. Dale Crossley, JD Financial Planner, RJFS

Evan M. Shear, CFP®, 

1515 International Parkway // Suite 2019 // Heathrow, FL 32746 // 407-215-7575

2395 N. Courtenay Parkway // Suite 201 // Merritt Island, FL 32953 // 321-452-0061

Raymond James Financial Services, Inc.


Material created by Raymond James for use by its advisors. The information contained herein has been obtained from sources considered reliable, but we do not guarantee that the foregoing material is accurate or complete.  Raymond James is not affiliated with any other entity listed herein. ©2016 Raymond James Financial Services, Inc., member FINRA/SIPC. Securities offered through Raymond James Financial Services Advisors, Inc. Investment advisory services are offered through Raymond James Financial Services Advisors, Inc. CrossleyShear Wealth Management is not a registered broker/dealer and is independent of Raymond James Financial Services.