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How IRAs Fit into Overall Retirement Planning

04/03/2017

tax savings

There are great tax savings to be had with IRAs. They should be a part of everyone’s retirement savings plan. While you can go with a traditional IRA for immediate tax deductibility or a Roth IRA that provides for tax-free, long-term growth, either IRA in your retirement planning can leave you with more funds for the future. Motley Fool’s article, “Why the Smartest Retirement Savers Have an IRA,” describes several advantages that IRAs have over other tax-favored accounts that make them a “must-have” for retirement planning.

  1. IRAs have flexibility. Many folks say the biggest negative about their 401(k) plan at work is that there are poor investment options. The plans don't offer a variety of investment choices and have high fees. This takes away the savings power of a retirement plan and costs tens of thousands of dollars in lost expenses over the course of a career. However, an IRA allows you to invest in just about anything you want, including individual stocks and bonds, mutual funds, or gold bullion. You can also select the lowest-cost options to implement your investing strategy, saving a lot of money that would otherwise have gone to financial providers.
  2. No employer OK needed. Whatever you make or what other options you have for retirement savings, you can always start an IRA. You only have to earn enough income to cover whatever you contribute, up to the maximum contribution allowed. Note that those over age 70½ are not eligible to contribute to a traditional IRA, and Roth IRA contributions are subject to income limits. There are also other income limits that impact your ability to deduct contributions to traditional IRAs. But if you don't have access to a retirement plan at work, an IRA can be a great option for a tax-favored way to retire.
  3. IRAs can live on after you pass away. An IRA isn’t only for retirement—it can also help with estate planning. Your heirs will have the option of stretching out the required minimum distributions (RMDs) throughout their lifetimes. This can extend the tax benefits of the IRA for another generation and avoid a tax liability for decades longer than would otherwise be possible.
  4. An opportunity to manage your taxes. Once you’ve retired, a major advantage of an IRA comes into play. You’ll be able to manage the tax implications by coordinating your IRA withdrawals to minimize your tax bill. For instance, if you have a combination of traditional IRAs and Roth IRAs, work through the numbers to control the amount of taxable income that you earn for the year. Bear in mind that while traditional IRA withdrawals are included as taxable income, Roth IRA withdrawals are not.

Consider the IRA a worthwhile tool for savings, managing your tax burden and planning for a well-funded retirement.

Do you live in Miami-Dade, Broward, or Palm Beach counties in Florida? Laws are constantly changing-- has your estate plan been reviewed in the last 2-3 years? Call me (954-888-1747) right away for peace of mind. I can help!

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Reference: Motley Fool (March 5, 2017) “Why the Smartest Retirement Savers Have an IRA”

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