The Trifecta in Roth IRAs - Rodgers & Associates

The Trifecta in Roth IRAs

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As cash bonuses, capital gains distri­b­u­tions, and holiday cash gifts provide ample liquidity, consider the oppor­tu­nities that abound for funding Roth IRA accounts.

In a perfect world, we would probably want all of our money in Roth IRA accounts. The reason is simple: tax free growth over your entire lifetime, and perhaps even longer if heirs under­stand their stretch opportunities.

  • Between now and December 31, 2013, you have the oppor­tunity to decide how much to convert to a Roth IRA. Any amounts converted will be taxed now, but will enjoy tax free lifetime growth. Even if you are in a high tax bracket, the critical question is will you ever be in a lower tax bracket? For many people the answer is no, even in retirement.
  • As the New Year rings in, you will also have the oppor­tunity to contribute to a Roth IRA for 2014. Investing at the beginning of a new tax year gives you the benefit of earning money on your invest­ments all year long. In the case of 2013, the S&P 500 has advanced over 26.5%, as of November 22, 2013. If you failed to contribute in the beginning of the year, this growth remains stubbornly taxable.*
  • Contri­bu­tions for 2013 can also still be made until April 15, 2014. Currently, the maximum you can contribute in both 2013 and 2014 is $5,500 if you are under age 50 and $6,500 is you are over age 50.*

*There are adjusted gross income (AGI) phase outs for contri­bu­tions. If your joint adjusted gross income is over $178,000, your contri­bution amount will be lowered until it is completely phased out at an AGI level of $188,000. For single taxpayers, the initial phase over AGI level is $112,000 and is completely phased out at $127,000.

The trifecta of a conversion, along with a 2013 and 2014 contri­bution are all possible within the next two weeks. Improve your odds of achieving financial indepen­dence by inves­ti­gating these strategies now.