Hey guys, Brent here with Oak Road Wealth Management.
We have a lot of people asking about Roth IRA’s, so here is some information about them to help you best invest your retirement assets.
A Roth IRA, like a traditional IRA or a 401k, is a tax-efficient retirement savings account. It is intended to encourage people to save more so they are better prepared for retirement income needs.
The difference between a traditional IRA and a Roth IRA:
A traditional IRA consists of pre-taxed money. If you are eligible, income put into one of these is deductible from your total income on your taxes. As the account grows, taxes continue to be deferred. As you take the money out in your account in retirement, it is taxed as income.
A Roth IRA works almost the opposite of a traditional IRA. Right now, you pay taxes on that money at your current tax bracket, but for a Roth account, the money invested and the growth is tax-free when you take it out during retirement. This is a great tool to set aside some tax-free income for retirement!
Who would a Roth IRA be useful for?
It can be a great option for someone currently in a lower tax bracket if they expect to be paying more taxes in the future. They can take advantage of the Roth investment while they are in a lower tax bracket and they switch to a traditional account if they want to down the road to defer taxes when they are in a higher tax bracket. However, a Roth option might also be appealing to those in a higher tax bracket as they can still pay the taxes now to get them out of the way. Think of this like eating your veggies right away rather than waiting until the end of the meal.
Roth IRA for high earners?
Now, there are some limitations to who can contribute to a Roth IRA based on earnings in a given year, and this can vary from year-to-year. However, even if you’re someone who earns too much and can’t contribute to a Roth IRA, there is something called a backdoor Roth.
If you’re a high earner and you think a Roth sounds like something you still want to invest in, we can talk about how to make that happen. If any of this is of interest to you, or if you have other questions about a Roth IRA, feel free to reach out to us. We will walk you through it and help you decide if it’s a good fit for your situation.
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