Freeman's Blog


Contributing to a Roth IRA or a designated Roth account in an employer retirement plan do not reduce current income, but qualified withdrawals are generally free of federal income tax as long as they meet certain conditions. Moreover, withdrawals from a Roth IRA can tax-free and penalty-free at any time, for any reason.

Repositioning Your Retirement Dollars

  • If you have a traditional IRA but prefer the advantages of a Roth, you can open a Roth IRA and make contributions to either or both accounts. However, you are subject to the combined annual contribution limit.
  • You could also convert all or part of your traditional IRA money to a Roth IRA. You can convert contributions to an employer’s retirement plan to a designated Roth account if the plan allows for conversions.
  • Conversions of monies to a Roth account are subject to federal income tax in the year of conversion. Under current tax law and if you meet all conditions, the Roth account will incur no further income tax liability for the rest of your lifetime.
  • The prospect of a substantial tax bill can be daunting, but paying taxes now may be a worthwhile tradeoff for potential tax-free growth and tax-free income in retirement. And because you do not have to take required minimum distributions (RMDs) from a Roth IRA, you have more flexibility when taking withdrawals.
  • To make the tax liability of a Roth conversion more manageable, you could spread out smaller conversions over several years. Recharacterizations should take place by October 15 of the year following the tax year of the conversion.

Contribution and Distribution Rules

  • Eligibility to contribute to a Roth IRA phases out at higher income levels. (Income limits also apply for tax-deductible contributions to a traditional IRA if you’re an active participant in an employer plan.) IRA contributions for 2017 can be made up to the April 2018 tax filing deadline; however, employer-plan contributions and Roth IRA conversions for 2017 must be made by December 31.
  • To qualify for tax-free and penalty-free withdrawals, distributions from a Roth IRA or a Roth employer plan account must meet a five-year holding requirement and take place after age 59½ (with some exceptions).
  • RMDs from traditional IRAs and employer-sponsored retirement plans (including Roth accounts) must start in the year you turn 70½.
  • Beneficiaries of all IRAs and employer plans generally must start taking RMDs in the year after the original account owner’s death.

These things get confusing!

With multiple accounts in different places, it can get a bit confusing to know what to do with your monies. Let me show you how to get the most from your retirement planning. Contact me for a FREE retirement strategy consultation at my office in Upper Marlboro, MD. Contact me 1-833-313-7233.

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