The Roth IRA offers a huge tax break to retirement savers. Even though many people prefer the tax deductions that only traditional IRAs offer, Roth IRAs have the trade-off benefit of letting you take tax-free withdrawals once you retire. However, there are some things about Roth IRAs many retirees don’t realize — things that could help them plan even more effectively. Below, we’ll talk about three Roth IRA facts that should be on every retiree’s mind as they plan their finances. The three facts are: you don’t have to take minimum distributions, the beneficiaries can get tax benefits throughout their lifetimes, and Roth IRA withdrawals can help you avoid having your Social Security taxed. Before following this author’s advice, I would consult with a tax advisor or licensed financial planner. Traditional IRAs require you take minimum distributions at age 70 1/2. If you don’t you’ll be charged a 50% tax penalty. RMDs (required minimum distributions) are based on age and life expectancy. Fortunately, Roth IRAs do not have RMDs. Because you don’t have to take RMDs, you can preserve the tax-free treatment of your Roth IRA assets throughout your lifetime. Moreover, if you name loved ones as individual beneficiaries of your Roth IRA, they can get those benefits as well. A surviving spouse beneficiary always has the right to take inherited Roth IRA assets and roll them over into the spouse’s own Roth IRA. Non-spouse beneficiaries don’t have that amount of flexibility, but they can elect to take withdrawals from their inherited Roth IRA that can stretch throughout their expected lifespans. Using rules similar to those for retiree required minimum distributions from traditional IRAs, those who inherit Roth IRAs have to take out a certain amount of the assets inside the Roth each year. However, the ability to stretch those distributions out across an entire lifetime dramatically increases the total tax benefit from using a Roth. Income from a traditional IRA or 401k combined with your Social Security income can push your income into a bracket where you will lose money to taxation. It’s important to understand the difference between the income tax and wealth tax. See last week’s blog post for an examination of the difference. However, Roth IRA distributions are not added to your outside income for purposes of the threshold. By monitoring how much you take from traditional retirement accounts and how much you use Roth IRAs, you can find a balance that will reduce or eliminate any income tax on your Social Security. Even if you’re in your early 20’s or 30’s, go ahead and plan for your future and create a strategy which will build a legacy for your next generation.
In 2010, Leonard Kim unplugged his microwave, picked it up, walked out of his apartment, down the hallway, and plugged it into the outlet at the end of the hallway usually used only by maintenance staff. He couldn’t pay his electric bill and it was the only way he could heat his $3 dinner. Soon after he was unable to pay the rent and homeless. Three months ago he was named by Inc. Magazine as one of the top youth marketers in the country. Kim has written thousands of articles over the last few years, including as many as 1000+ in 2015. His writing catapulted him to more than 200,000 followers on Twitter. It changed, he says, because he “was sick and tired of being sick and tired.” After working with several startups, building them up to generate healthy revenue, and watching them fail, Kim began focusing on personal branding. Leonard’s tips for branding are: discover your brand, humanize yourself, get noticed, provide extreme value, and stack your success. The article goes into the details of each tip, and it’s worth reading. Because of Leonard’s enthusiasm, the author shared her three financial tips for 2017. The tips are: the emergency fund is non-negotiable, duo purpose your savings, and save like you’re in a recession all year long. Your life has value, and you should share your life with others, because in sharing you will add value to someone else’s life. Sharing can be of your time, financial resources and or energy. Think of one way you can add value to someone’s life, and see what happens next.
If you need are interested in creating a budget, then contact me for a financial checkup in the contact me section.
For this week, I’ve included How ‘Mr. Money Moustache’ Retired at Age 30 from ABC News YouTube channel.
“If you think you know it all, you’re a fool for sure; real survivors learn wisdom from others.” Proverbs 28:26 MSG