IRA Contributions – To Roth or Not to Roth? That is the Question!
Well, maybe it wasn’t a burning question until you opened this blog. But, April 15th is coming up, so it’s time to start thinking about whether or not you will contribute to an IRA and if so, what type?
I know it’s not popular in the press these days, but I am a fan of contributing as much as possible to your 401(k) or other work retirement plan before the IRA. This is assuming that your workplace retirement plan has low costs and a decent investment menu. Again, the press would have you believe this doesn’t exist, but there are many quality 401(k) plans out there. Hey, I never was the popular type, anyway.
So, if you have maxed out your 401(k), or your employer doesn’t offer a retirement plan, now it’s time to look at IRA options. Individual Retirement Accounts (IRAs) can be opened at just about any institution that handles money. My favorites are the discount brokerages (Schwab, Fidelity, eTrade, TD Ameritrade, or Vanguard) for their low costs and variety of investment options available.
Traditional IRAs and Roth IRAs both let you contribute up to $5,500 per year (or $6,500 if you are aged 50 or older). You or your spouse must have earned income equal to or more than your contribution amount. You have until April 15th, 2016 to contribute to your IRA for 2015 taxes.
With Traditional IRAs, you may be allowed to deduct your contributions from your income taxes. This depends on your income (starting at $61k for singles and $98k for married couples the deduction is phased out) and whether or not you have access to a workplace retirement plan. Growth in a Traditional IRA is tax-deferred and will be taxed as ordinary income when you withdraw at retirement.
Roth IRA contributions do not give any up front tax deduction at all, but the growth is tax free as long as you keep the money in the account for 5 years or until age 59 1/2, whichever is longer. Not everyone gets to put money in a Roth IRA, though. For couples, the phase out begins at $183k income in 2015 (increasing to $184k in 2016). For singles, your Roth contribution allowance starts disappearing at $116k in 2015 ($117k in 2016).
Which IRA is best for you? Call me for a 15 minute consultation and we can talk it over. Also, for more details on IRA rules, see this handy sheet from our friends at the IRS. https://www.irs.gov/pub/irs-news/IR-15-118.pdf
If these topics sound like they would be of interest to your employees, sales conference, or professional organization, contact me at 303-324-0014 or kristi@