To be able to retire in comfort, you have to plan ahead in advance and take all the right steps along the way. We have helped countless clients realize their retirement dreams, and we can do the same for you. For most people, an individual retirement account will be a major part of the plan.
There are two different types of IRAs that are widely utilized: the traditional individual retirement account, and the Roth IRA. There are similarities between them, and there are a couple of very significant differences. With a traditional account, pretax contributions are made. This is a positive on the one hand, because you pay taxes on less income.
The bad news is that distributions from the account would be subject to regular income taxes. However, many people will be in a lower income tax bracket when they put their working years behind them. Therefore, if you do not take any money out of the account until you are fully retired, you may realize tax savings on that level.
Speaking of withdrawals, you are allowed to remove funds from the account without being penalized when you are 59 ½ years of age. This being stated, there are some exceptions to the rule. If you incur out-of-pocket medical expenses that exceed 10 percent of your adjusted gross income, penalty-free withdrawals could be facilitated.
First time homebuyers can also take out up to $10,000 to make a purchase possible without incurring any penalties. These are a couple of the exceptions, but there are a handful of others.
Since no taxes are paid until distributions are taken out of the traditional individual retirement account, the tax man has to find a way to get his share. As a result, you are required to take mandatory minimum distributions when you are 70 ½ years old.
When a Roth individual retirement account is established, the deposits into the account are made with after-tax income. Penalty-free withdrawals are permissible when the account holder reaches the age the age of 59 ½, but no mandatory distributions are ever required since taxes have already been paid. Because of this, a Roth IRA can ultimately be a very useful estate planning tool.
There is a concept called the stretch individual retirement account. If a Roth IRA is inherited by a beneficiary other than the spouse of the account holder, mandatory minimum distributions would be required. The amount would depend upon the age of the inheritor, with younger beneficiaries being allowed to take less than their older counterparts.
These distributions would be tax-free as long as the account was held for more than five years before the death of the account holder. It would be wise for the beneficiary to take only the minimum that is required by law to take maximum advantage of the tax-free growth of the assets in the account.
Let’s Get Started!
We would be glad to help you put a solid plan in place that leads to a comfortable retirement. You can give us a call right now at 831-649-1122 to set up a consultation, and if you would prefer to get in touch electronically, simply send us a message through the contact page on this website.