subject: Temecula Retirement Planner Reveals Roth IRA Approachfor High Income Earners [print this page] Temecula Retirement Planner Reveals Roth IRA Approachfor High Income Earners
On May 17, 2006, the Tax Increase Prevention and Reconciliation Act (TIPRA) was passed into law by the President. One of the provisions of this new law, which did not come into effect until January 1, 2010, made it viable for high income earners (those with a Modified Adjusted Goss Income over $100,000) to convert their traditional IRA's into Roth IRA's. The implication of this provision? It affords high income earners the benefit of the tax free growth of a Roth IRA. Although this sector of the population is able to convert an existing retirement account to a Roth product, they are still not able to contribute directly to the Roth.
Until now
One aspect of the conversion process is a stipulation allowing high income earners over the age of 50 the opportunity to convert up to $6,000 per year from traditional to Roth IRA product ($5,000 per year for those under the age of 50). In other words, a yearly investment can first be made to the traditional fund and then converted over to the Roth.
Why is this advantageous?
It is clear that not only our economy, but also federal programs such as Social Security, Medicare, and Medicaid are in grave danger. Regardless of the political "spin" that is put on bailouts and relief efforts, most experts feel that the country is headed for tax increases rather than tax cuts. If you believe this to be true, the wise move is to seek out retirement and investment strategies that reduce your tax liabilities. A Roth IRA is one such tactic, providing tax-free growth and simplified savings. In your traditional IRA, you are not taxed on your investment (depending on your income) but then taxed on the earnings when you withdraw. Conversely, initial Roth contributions are taxable as income, but earnings are accumulated tax free. Assuming that we are headed towards a future of elevated taxation, eliminating liabilities on the back end (withdrawl) has the capability to save you thousands of dollars. Unfortunately, this option was never before possible to those earning over $100,000. Currently, however, the window of opportunity is open for all to grasp.
The key with this, or any financial retirement strategy, is to work with a seasoned professional who has a firm grasp on the ever changing rules of income taxes as they pertain to retirement savings. Finding intelligent ways of helping you save and grow your money is the primary role of a financial advisor and active portfolio management. Investigate your options, ask questions, and then move down that path which is best fit for you and your family.
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