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6 IMPORTANT IRA FACTS
Below you will find some helpful information on IRA's that may help you reach your retirement goals:
1) DELAY OR PREPAY YOUR TAXES
Traditional IRAs allow you to defer paying taxes on contributions up to $6,000 of retirement savings, or $7,000 if you are age 50 or older. Upon withdrawal, regular income tax is due on your savings and the interest, as it has never been taxed. Roth IRA contributions are made with after-tax dollars and withdrawals from Roth IRA accounts that are at least five years old, including the earnings, are tax-free. Investing in both types of retirement accounts can add tax diversification and flexibility to your portfolio.
For contribution limits on other Qualified accounts like 403b, 457 plans, Individual 401K's, etc., just give us a call at (480) 878-7444, we would love to help.
2) CONTRIBUTION DEADLINE
You have until the date you file your taxes to make IRA deposits. If you make a contribution to an IRA between January 1 and the annual tax deadline, you should tell your Investment Advisor which year the contribution is for. You can file a tax return claiming a traditional IRA deduction before the deposit is actually made, but the contribution should exactly match the actual contribution and be in the account by the due date of annual contributions deadline for that year (tax deadlines vary slightly from year-to-year, consult with your tax professional for detailed dates and deadlines.)
3) YOU CAN ROLLOVER YOUR 401(k) PLAN TO A PERSONAL IRA
In fact, a high percentage of IRA money in accounts today were rolled over from what are called "orphaned" 401(k) accounts. These are qualified plans that you either don't move when you leave a company, or simply, didn't know what to do with it, so there it sits. More than 10 times as many dollars are added to IRAs through rollovers than through direct contributions.* As mentioned above, retirement savers can contribute up to $6,000 or ($7,000 if over 50) annually to an IRA, but there is no limit on the amount that can be rolled over to an IRA from your 401(k) or other retirement account after a job change or upon retirement. The average rollover amount was $74,785 in 2008, compared with an average individual contribution of $3,666. Be careful of taking possession of IRA funds, changes in the IRS guidelines only allow individuals to do an indirect rollover 1 time per year. If you were to do more than one, the later moved account would lose it's IRA status and you would be taxed on the entire amount. Always work with an Investment Advisor and have them do a "direct rollover" or "company-to-company" transfer to ensure it keeps it's IRA tax status properly. There is no limit on the amount of direct rollovers an individual can make in one year. Keep in mind, there is no benefit to leaving an old 401(k) at an old company, as the investment choices are usually not as wide and generally, the fees and loads within the plan are higher. Because fees can have a dramatic effect on the overall growth of your investment, it is always a good idea to speak with your Investment Advisor about your options.
*SOURCE: Employee Benefit Research Institute/2008 - https://www.ebri.org/pdf/briefspdf/EBRI_IB_05-13.No386.IRAs.pdf
4) ROTH OPTION INCREASING IN POPULARITY
The $100,000 income limit for converting a traditional IRA to a Roth IRA was eliminated in 2010. Since then, there has been a surge in Roth IRA conversions. Retirement savers must pay income tax on the amount converted from a traditional IRA to a Roth IRA, but withdrawals will be tax-free in retirement. "You are paying up-front to remove the uncertainty of what future tax rates will do to your savings." Do you think taxes will be higher or lower in 10 years? 20 years? Talk with Rise Financial Group to get a personalized Roth IRA conversion report on part, or all of your IRA/401(k) balance.
5) TAKE YOUR RMD AT AGE 72*
An RMD (Required Minimum Distribution) or simply, a withdrawal, is required at this point in your life. You cannot shield money from taxes in your traditional IRA indefinitely, which is why these distributions become required after age 72. At age 72, the amount required to withdrawal is approximately 3.91% of your IRA balance on December 31st of the previous year. The percentage increases each year as you get older. example, at 90, the RMD is approximately 8.77% of your IRA balance. (See chart) Those who fail to withdraw the correct amount must pay a 50-percent excise tax on the amount not distributed as required.
Below is an example of the amount that would be required to be withdrawn from your IRA.
IRA Balance on December 31st is $425,000.
IRA Owners age is 76 years old
Minimum amount to be withdrawn from the IRA is 4.20%
$425,000 X 4.20% = $17,850
If at least this amount isn't taken from your IRA during the year, then you will receive a hefty penalty of 50% of the missed payment. This is why it is important to put in place either an RMD Solution plan together, or secure an RMD Max plan to make sure your withdrawals are IRS compliant. We can help put either in place!
6) BE AWARE OF FEES ON YOUR IRA
One of the biggest determining factors of your long-term investing results are the fees and commissions you pay on your accounts. Every dollar that you lose to frictional costs such as these are dollars that are unavailable to compound over time. Like death and taxes, investing expenses are inevitable, at least to a point. But how much is too much? Rise Financial Group explores the impact of fees by performing a simple audit on your account and providing you with a very detailed summary report. If you have an IRA annuity, we provide a Custom Policy Review showing performance, fees, charges and the impact they have had and will have on future growth of your IRA. (click HERE to see information we provide on an actual client report. An example of a client who was sold a variable annuity and did not know he was being charged any fees at all!) For investments like, stocks, bonds, mutual funds, etf's, etc., we provide and consult on your IRA assets using a Morningstar Report. This report will show pros and cons of any investment, provide the yearly annual returns (with dividends included), provide the performance comparative, versus the benchmark of a similar stock portfolio, it will show the annual fees to own an ETF or mutual fund. An important aspect often missed. Typically the lower the cost, the better odds to meet or beat the comparative index and if a stock has dividends, the payout amounts over time.
*Note: I have converted the IRS tables to a "percentage" to calculate the required minimum distribution. These figures can change as the IRS updates longevity, etc. Please contact Rise Financial Group for your "required minimum distribution" that is current and accurate for your situation.
We would like to help you figure your RMD's and provide advice on how your IRA will play in to your retirement income, please click the button below to schedule a no-obligation appointment with a Registered Investment Advisor
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