Become a Retirement Account Expert
Help your clients build a retirement plan that works as hard as they do. Let BlackRock assist as you put your clients in the right plan. Use our tools to help your existing clients plan for the next phase of life and become a retirement expert to attract new clientele.
Choosing the Right IRA
A traditional IRA is a tax-deferred savings vehicle, like a 401(k), designed to help an investor who does not have an employer-sponsored plan save for retirement. However, depending on income even people with an employer sponsored plan maybe eligible to invest in IRAs. A Roth IRA allows your clients to make after-tax contributions and, later, withdraw the assets federally income tax-free, provided your withdrawal is "qualified." These personal retirement plans are available to anyone who has compensation during the year. Compensation includes wages, salaries, fees, tips, commissions and taxable alimony. Also if only one spouse works, the non-working spouse can also contribute to his or her own IRA, even though they have no earned income.
Start the Discussion
Retirement Goals, Income & Taxes
When you meet with your clients 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 may they have at that point in their lives?
Make sure you actively discuss taxes no matter where they are in life. For example, if their taxes will be lower in the future, due to a lower income, deferring taxes maybe an option. If, however, taxes may be higher due to higher income, paying them off now may be the best move. Since the future of taxes is uncertain, it is wise to help your clients diversify their tax exposure. This can help them optimize their after-tax income.
|Teaching the Differences of Traditional & Roth IRAs|
|Traditional IRAs||Roth IRAs|
|Contributions||After-tax dollars with a possible deduction taken on tax return.||After-tax dollars with no deduction allowed|
|Withdrawals After Age 59½||Taxed as current income.||Tax-free for investors who have had the accounts for at least five years.|
|Required Minimum Distributions||April 1 of the year following the year the owner attains age 70½.||None for owner.|
Inform your client that money contributed is after tax dollars and the earnings grow tax deferred in a Traditional IRA. Contributions may be tax deductible depending on their income level and if they are eligible to participate in a company plan. On the other hand, contributions to Roth IRA's are never tax-deductible. Earnings in both vehicles grow tax deferred.
Taxation of Withdrawal*
Required Minimum Distributions (RMDs)
Traditional IRAs require you to begin taking RMDs at age 70½ regardless of employment status. Roth IRAs, however, have no RMDs for owners.
"Qualified" withdrawals from a Roth IRA will be exempt from federal income tax while all withdrawals from a traditional IRA are taxed at ordinary income rates. If your client elects to make a non-qualified withdrawal from a Roth IRA, funds are considered withdrawn in the following order:
- Taxable converted dollars
- Non-taxable converted dollars
Contributions and converted dollars are returned federally income tax-free. Earnings removed as "qualified" distributions are federally income tax-free; otherwise they are taxed as ordinary income.
Making "Qualified" Withdrawals in a Roth IRA
In order to make a "qualified" withdrawal, or in other words taking money from your Roth IRA early, your client must meet two conditions:
- Have had a Roth IRA for at least five years. The five-year minimum holding period begins January 1 of the year you first contribute or attribute money to the Roth IRA regardless of when during the year the contribution is actually made.
- Be at least age 59½, disabled, deceased or purchasing your first home (up to $10,000 of earnings).
After discussing with your clients their goals for retirement, future tax situation and their options you should have a better of idea of what retirement vehicles fit best. Use this chart to walk your clients through the differences between IRA strategies.
* Phase-outs apply. † "Qualified" Distributions—distributions to individuals who have held a Roth for at least five years AND satisfy one of the following conditions: age 59½, disabled, first-time home purchase (up to $10,000) or deceased. ‡ Medical expenses must exceed 7.5% of AGI. § Substantially equal periodic payments. || Beneficiary looking to "stretch" the IRA over his or her life expectancy. BlackRock does not offer tax advice. Clients should consult their tax professional for such advice.
What is a better fit for your clients?
A traditional IRA may be better if your client:
- Needs a lower tax bill now
A Roth IRA may be better if your client:
- Expects their income tax rate to be higher in retirement than it is now.
- Are eligible to make Roth IRA contributions
- It is likely they will not need the entire IRA for retirement income and prefer to avoid RMDs, preserving the assets for a beneficiary who can "stretch" the money tax-free. See the Stretch IRA tool.
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* Withdrawals may be subject to state income taxes.
Sources: BlackRock; Internal Revenue Service
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BlackRock cannot be held responsible for any direct or incidental loss resulting from applying any of the information provided on this site or from any other sources mentioned. BlackRock is not engaged in rendering any legal, tax or accounting advice. Please consult with qualified professionals for advice in these areas.