The Roth IRA can be a powerful tool for your retirement planning in 2023, but there are so many misconceptions you may be wondering whether it’s worth it for YOUR retirement. In this video, Jessica Cannella will go over the common misconceptions of the Roth Ira and how it could be a powerful wealth-building tool for retirement.
00:14 The Common Misconceptions of the Roth IRA
00:47 The Age 59 ½ Rule!
02:30 I Make Too Much Money!
05:26 What Are the Parameters the I can Contribute?
06:28 The Hardest Part of Conversion…
07:35 Withholding In Your IRA
09:13 Conversion Illustration
10:23 Age Requirement For Distribution
11:25 The Roth IRA is POWERFUL!
11:57 Check Out Our Latest Uploads!
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Disclaimer:
This video discusses fixed-income investing and utilizes the 10-year U.S. treasury as a general representative fixed-income investment. Conclusions reached, opinions stated, and downside risks and potential returns presented should not be construed as applying to other types of bonds or fixed-income assets. Other types of fixed-income products carry different levels of risk and return potential and should be evaluated as an element of a diversified portfolio with your specific risk tolerance, investment objectives, and timeline in mind. Nothing in this video is investment advice, an investment recommendation, or an offer to buy or sell any security. Investing involves risk.
#retirementplanning #rothira #rothconversion #retirementincome #retirementsavings #roth401k #retirementincomeplanning #retirementlife…(read more)
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When it comes to retirement planning, many individuals turn to Roth IRAs as a viable option. However, there are a number of misconceptions surrounding this type of retirement savings account. In this article, we will explore some of the most common misconceptions about Roth IRAs and the benefits they offer for your retirement planning in 2023.
Misconception #1: I can’t contribute to a Roth IRA because I make too much money.
The truth is that Roth IRA income limits do exist, but they are higher than they used to be. As of 2021, single filers making up to $140,000 and married filers making up to $208,000 can make a full contribution to a Roth IRA. Additionally, those who are above the income limits can still contribute to a Roth IRA through the “backdoor” method.
Misconception #2: I can’t withdraw money from a Roth IRA until I’m 59 ½ without penalty.
While it is true that there is a penalty for withdrawing earnings from a Roth IRA before the age of 59 ½, there are exceptions to this rule. If you need to withdraw money from your Roth IRA due to unforeseen circumstances, such as a disability or a first-time home purchase, you may be able to avoid the penalty.
Misconception #3: Roth IRAs are the same as traditional IRAs.
Roth IRAs and traditional IRAs are not the same. The main difference is how the contributions are taxed. With a traditional IRA, you contribute pre-tax dollars and pay taxes on the withdrawals. With a Roth IRA, you contribute after-tax dollars and do not pay taxes on withdrawals. Additionally, traditional IRAs have required minimum distributions (RMDs) starting at age 72, whereas Roth IRAs do not have RMDs.
Now, let’s explore some of the benefits of a Roth IRA for your retirement planning in 2023:
Benefit #1: Tax-free withdrawals
One of the biggest benefits of a Roth IRA is that you do not pay taxes on withdrawals during retirement. This can be particularly advantageous if you expect to be in a higher tax bracket during retirement than you are currently.
Benefit #2: No required minimum distributions
As previously mentioned, Roth IRAs do not have RMDs. This means that you can keep your money in the account for as long as you want and let it continue to grow tax-free.
Benefit #3: Flexibility
Unlike traditional IRAs, there are no age limits on contributions to Roth IRAs. Additionally, you can withdraw your contributions at any time without penalty, which provides flexibility in your retirement planning.
In conclusion, Roth IRAs offer a number of benefits for your retirement planning in 2023, despite the misconceptions that surround them. By understanding the differences between Roth and traditional IRAs and taking advantage of the tax-free withdrawals and flexibility that Roth IRAs offer, you can create a solid foundation for your retirement savings.
New RMD Rules: If you had not started RMDs by 2023, your RMD age is at least 73. If you were born in 1960 or later, your RMD age is 75.
Withholding taxes from a Traditional IRA in order to pay taxes can be a really bad idea IF you are not yet 59 1/2. The amount withheld is treated as an ordinary distribution and can be subject to a 10% early withdrawal penalty.
Once you are over 59 1/2 this strategy might be the right one for you. But consider that paying taxes from your taxable savings is effectively a kind of backdoor Roth IRA contribution. That's because you are being allowed to keep the Uncle Sam's portion of your Traditional IRA balance and pay back Uncle Sam with after tax dollars.
Please quit calling a Roth IRA "your Roth". Roth is the tax treatment. There are a number of different account types that can be Roth, not just the Roth IRA. This shorthand creates confusion.
Around 2:05 in the video you say that you will get the 10% withdrawal penalty … "if you access any gains or interest inside of that Roth while you're under the age of 59 1/2." This is NOT true. If your distributions are not qualified (>59 1/2 AND open and funded 5+ years), then Ordering Rules for Non-Qualified distributions apply, and category 3 (earnings) are subject to taxes and optionally the 10% early withdrawal penalty if you are not yet over 59 1/2.
So earnings withdrawn from a Roth IRA before age 59 1/2 are always subject to both ordinary income taxes AND a 10% penalty. But they are withdrawn last from the account.
Might want to tweak that typo in the title. (“It’s”)
Misconception not mentioned.… once your Roth IRA has existed at least 5 years, you can pull the principle (contribution) out without penalty.
Not necessarily a smart thing to pull $ out, but it can be a place to park $ for emergencies whilst growing the $ for retirement.
I understand that if you have a Roth IRA or Roth 401k you pay the taxes upfront. If you invest in a company stock and that company stock pays dividends yearly. Will the dividends go to the traditional part of your account like company matching contributions or does it go inside your Roth part like your payroll contributions? thanks
I had to wait because of income restrictions when Roth first came out in 1998, then I did conversions to fund a Roth when my income levels decreases in retirement. It’s a good tool for the avoidance of RMDs and future tax free growth. Pay the taxes on the conversions when you are in lower brackets. The future looks like higher taxes are on the way.