“America’s IRA expert,” Ed Slott, recently told other industry experts that “an IRA is just an IOU to the IRS.” Slott says he doesn’t see any benefit to using a traditional IRA right now because tax rates are so low. In this video, Dustin with @MundorfWealthManagement explains to @erinkennedytv why he agrees that more people need to consider tax-free accounts.

Because we are living in a historically low tax rate environment, it does make sense for most people to focus on contributing to tax-free accounts like Roths.

However, there is no cookie-cutter answer; if you’d like to learn more about whether contributing to tax-deferred or tax-free accounts make sense for you, please reach out to Dustin with a call or text to the number on our website, or book a free chat by visiting www.LongLiveMyMoney.com

@EdSlottandCompanyIRA

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Is There Any Reason to Use a Traditional IRA?

Individual Retirement Accounts (IRAs) have long been a popular investment tool for individuals looking to save for retirement. While the popularity of Roth IRAs has increased in recent years, traditional IRAs still have their own unique advantages that make them worth considering.

A traditional IRA is a retirement savings account where contributions are made on a pre-tax basis. This means that the money you contribute to a traditional IRA is tax-deductible for the year in which you make the contribution, which can have immediate tax benefits. However, keep in mind that you will have to pay taxes on your withdrawals from the account during retirement.

One of the main advantages of using a traditional IRA is the potential for higher contributions compared to a Roth IRA. For the tax year 2021, the contribution limit for a traditional IRA is $6,000, with an additional $1,000 catch-up contribution allowed for individuals aged 50 or older. This higher contribution limit can be beneficial if you have extra funds to save for retirement beyond what you can contribute to a Roth IRA.

Another reason to consider a traditional IRA is if you expect your tax bracket to be lower during retirement. Since contributions to a traditional IRA are tax-deductible, they can help lower your taxable income in the current year. This can be especially advantageous if you anticipate being in a lower tax bracket when you retire, as you would effectively be deferring taxes until retirement when you withdraw the money.

Additionally, if you have a high income and are not eligible to contribute to a Roth IRA due to income limitations, a traditional IRA can be a viable alternative. There are no income restrictions for contributing to a traditional IRA, allowing high-income earners to still take advantage of the tax benefits associated with an IRA.

A potential downside of a traditional IRA is that required minimum distributions (RMDs) must begin at age 72. RMDs are mandatory withdrawals that must be taken from your traditional IRA each year, and they are subject to regular income taxes. If you don’t need the money in retirement and prefer to leave it untouched for as long as possible, this could be a disadvantage.

In conclusion, while Roth IRAs have gained popularity in recent years, traditional IRAs still have their merits. The immediate tax benefits of tax-deductible contributions, potential for higher contributions, lower tax bracket in retirement, and eligibility for high-income earners make traditional IRAs a viable retirement savings option. However, it’s crucial to carefully consider your individual circumstances and consult with a financial advisor to determine the best retirement investment strategy for you.