All articles tagged with #roth ira
A retiree who mistakenly paid taxes on a small 401(k) distribution and later deposited it into a traditional IRA cannot convert it to a Roth IRA without paying taxes again, but can withdraw the excess contribution and earnings before the tax deadline to avoid penalties. The article emphasizes the importance of consulting a tax professional and setting up financial guardrails as one approaches retirement.
Starting January 1, 2026, workers over 50 earning more than $145,000 must make catch-up retirement contributions using Roth (after-tax) dollars due to new IRS rules, impacting both employees' savings strategies and employers' plan administration.,
Daniel Ramsey, a millionaire entrepreneur, shares his approach to saving for his children's future by starting early with Roth IRAs, involving them in investment decisions, and teaching financial values through education and family experiences to ensure responsible wealth management and long-term success.
Dave Ramsey, a personal finance expert, warns retirees about the potential challenges facing Social Security, highlighting a report that suggests the program will be fully funded only until 2034. After that, beneficiaries might receive about 80% of their expected payments unless legislative action is taken. Ramsey advises workers to invest 15% of their income in retirement savings, utilizing employer 401(k) matches and Roth IRAs, to mitigate reliance on Social Security.
The article discusses reasons to reconsider converting a traditional IRA to a Roth IRA, especially in light of potential extensions to the Trump-era tax cuts. It outlines 11 scenarios where a Roth conversion might not be beneficial, such as using IRA funds to pay taxes, having low-income beneficiaries, or planning charitable donations. The piece emphasizes the importance of evaluating personal financial situations and tax implications before proceeding with a conversion.
Despite the reduced likelihood of tax hikes under President-elect Donald Trump, demand for Roth IRA conversions is expected to rise as investors focus on long-term tax planning. Roth conversions, which involve shifting pretax IRA funds to a Roth IRA for tax-free growth, are increasingly popular, especially with the potential expiration of Trump's 2017 tax cuts in 2025. Financial advisors recommend considering Roth conversions in lower-income years to minimize taxes, but emphasize the importance of individual financial situations and comprehensive tax projections.
Tax expert Ed Slott warns that traditional IRAs and 401(k)s are tax-deferred, not tax-free, and emphasizes the importance of planning to minimize taxes in retirement. With potential tax rate increases and the expiration of the 2017 Tax Cuts and Jobs Act provisions in 2025, Slott advises converting to Roth IRAs to take advantage of current lower tax rates. He highlights the significance of paying taxes at the lowest rates and suggests strategies like Roth conversions and charitable giving to manage tax liabilities effectively.
Mega backdoor Roth conversions allow high earners to bypass Roth IRA income limits by shifting after-tax 401(k) contributions to a Roth account, offering significant tax-free growth potential. This strategy is particularly beneficial after maximizing other tax-advantaged options, though not all 401(k) plans permit it. Experts advise reviewing plan details and converting funds regularly to minimize taxes on growth.
The author rethinks income investing and explains why they sold their REITs and won't touch SCHD, a dividend ETF, in their Roth IRA. They argue that dividends don't move the needle in the face of currency debasement and suggest that investing in growth assets like tech stocks or utilizing the volatility risk premium for cash flow may be more beneficial. They rate SCHD as a hold for stable income but emphasize the need to outperform the inflation of the money supply.
As a Gen Z personal finance reporter, the author learned about the benefits of Roth IRAs for young investors, including the ability to make prior year contributions before tax season ends and the potential for a Saver's Credit. They also explored the use of high-yield savings accounts for emergency funds and sinking funds, highlighting the importance of understanding compound interest and tax implications when using these accounts.
Converting a 401(k) to a Roth IRA can lead to a hefty tax bill, but there are strategies to minimize the tax hit, such as spreading the conversion over multiple years, converting during low-income years, and using tax deductions and credits. Understanding the five-year rule for Roth withdrawals is crucial, as it dictates when funds can be withdrawn tax-free and penalty-free. Additionally, it's important to consider IRS rules and contribution limits when planning the conversion. Consulting with a financial adviser is recommended to determine the best strategy for individual situations.
As tax season approaches, Social Security recipients should be aware that around a dozen states will tax their benefits for the 2023 tax year, with different rules for each state based on age and income. Some states, like Missouri and Nebraska, will stop taxing residents on Social Security in 2024. To reduce taxes on Social Security benefits, experts recommend investing in a Roth IRA, where taxes are paid on money going into the account, making all future withdrawals tax-free.
A backdoor Roth IRA conversion is not taxable if done correctly, but certain circumstances can result in a taxable transaction. The backdoor Roth strategy allows individuals with income exceeding Roth IRA contribution limits to contribute to a traditional IRA and then convert it to a Roth IRA. However, factors such as the pro-rata rule and tax implications need to be considered. Consulting with a financial advisor is recommended to determine if a backdoor Roth conversion makes sense and to optimize tax strategies.
Retirees in certain states may face lower Social Security payouts in 2024 due to state taxes on benefits. Ten states, including Colorado, Connecticut, and Vermont, tax a portion of Social Security benefits. Each state sets its own rules regarding who gets taxed and how much. Additionally, federal tax rules apply to Social Security benefits regardless of state taxes. The IRS uses "combined income" to determine federal tax owed, which includes adjusted gross income, half of the annual Social Security benefit, and nontaxable interest. Having a Roth IRA can help lower federal tax bills by providing tax-free withdrawals in retirement.
The contribution limits for Roth IRAs in 2024 have increased, allowing individuals under 50 to contribute up to $7,000 and those over 50 to contribute up to $8,000. Contributing to a Roth IRA can lead to tax-free withdrawals during retirement, making it a valuable tool for building wealth. However, eligibility depends on earning enough income during the year, and contributions cannot exceed earned income. Opening a Roth IRA account and maximizing contributions may be a good strategy for individuals looking to boost their retirement savings.