To Roth or Not to Roth
When you meet with your clients about retirement, make sure you cover all the bases. Start the discussion with what their retirement goals are. Where do they see themselves at retirement? What assets, liabilities and income needs do they predict? Will their taxes be different in the future due to a change in income? Asking these types of questions will help you determine whether they have the correct type of IRA. Below are some of the differences between a traditional IRA and Roth IRA that you can explain to your clients if you are considering switching them over::
- Contributions: Pre-tax dollars with a possible deduction taken on tax return.
- Withdrawals after age 59½: Taxed as current income.
- Required minimum distributions: April 1 the year following the year the owner attains age 70.5.
- May be a better fit for: Clients who need a lower tax bill now.
- Contributions: After-tax dollars with no deduction allowed.
- Withdrawals after age 59½: Tax-free for investors who have had the accounts for at least five years.
- Required minimum distributions: None for owner.
- May be a better fit for: Eligible clients who expect a higher income tax rate in retirement and who likely will not need the entire IRA for retirement income. Instead, these clients may want to preserve the assets for a beneficiary who can "stretch" the money tax-free.
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