New Tax Law Raises Roth IRA Limits – Considerations For Winning The Long Game

When working with a golf pro, the development of the long game will utilize power and distance to optimize success. Finding the right financial pro can also help you develop the optimal retirement long game. 

Recent Roth IRA Changes: Time To Switch And Save?

We all want to maximize our retirement savings with intelligent tax planning. While a traditional 401(k) offers tax-deferred contributions and often an employee match, the recently passed Tax Cut and Jobs Act of 2017 gives many Americans a reason to consider switching to a Roth retirement account.

Pay Now Or Pay Later – That Is The Question

Although Roth contributions are not deductible, earnings grow tax-free, and the final balance may be withdrawn tax-free following the plan details. The dilemma then becomes, “Would you rather pay taxes now or later?” The recent tax law lowered marginal tax rates but cautioned they would rise to higher levels in 2026. At a time when many Americans have descended to a lower tax bracket, paying taxes on contributions now may be less of a hit than on the back end when both contributions and earnings are taxed at higher future rates.

Protection For Young Professionals, Compound Interest and Tax-Free Gains

Prospective retirees would also be wise to consider their earning trajectory going forward. For those expecting to make more money in the future, a Roth account can be a way to avoid paying taxes at a higher tax bracket. With earnings accumulating in a Roth account, young professionals can take advantage of decades of compound interest and collect investment gains tax-free at retirement.

Age and Income Considerations

There are rules that phase out the Roth contribution amounts allowed based on income. In 2019, participants can contribute up to $6,000 or $7,000 if they are 50 or older. These amounts are phased out once an individual has a modified adjusted gross income of $122,000 or greater if filing single and $193,000 or greater if married filing jointly. Regardless of income, individuals can opt for a full or partial Roth conversion if willing to pay tax on the conversion amount.

Lower Tax Rate Is Locked In

Recent tax cuts and a growing deficit, which could suggest future tax hikes, may make switching to a Roth IRA prudent. Doing so will ensure that your contributions are taxed at current, lower rates and your future earnings could be exempt from the IRS.

At Financial Consulting Group, our financial advisors have extensive experience in helping individuals and families interpret the new tax laws to save them money as part of an overall plan designed for their retirement. Let us advise you. Call us today to learn more at (504) 835-1707.

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401(k) plans a401(k) plans are long-term retirement savings vehicles. Withdrawal of pre-tax contributions and/or earnings will be subject to ordinary income tax and, if taken prior to age 59 1/2, may be subject to a 10% federal tax penalty.

Matching contributions from your employer may be subject to a vesting schedule. Please consult with your financial advisor for more information.

Like Traditional IRAs, contribution limits apply to Roth IRAs. In addition, with a Roth IRA, your allowable contribution may be reduced or eliminated if your annual income exceeds certain limits. Contributions to a Roth IRA are never tax deductible, but if certain conditions are met, distributions will be completely income tax free.

Please note, changes in tax laws may occur at any time and could have a substantial impact upon each person’s situation. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional.

Unless certain criteria are met, Roth IRA owners must be 59½ or older and have held the IRA for five years before tax-free withdrawals are permitted. Earnings withdrawn prior to 59 1/2 would be subject to income taxes. Additionally, each converted amount may be subject to its own five-year holding period. Converting a traditional IRA into a Roth IRA has tax implications. Investors should consult a tax advisor before deciding to do a conversion.

IRA tax deductibility and contribution eligibility may be restricted if your income exceeds certain limits, please consult with a financial professional for more information.

401(k) plans are long-term retirement savings vehicles. Withdrawal of pre-tax contributions and/or earnings will be subject to ordinary income tax and, if taken prior to age 59 1/2, may be subject to a 10% federal tax penalty.

Matching contributions from your employer may be subject to a vesting schedule. Please consult with your financial advisor for more information.

Like Traditional IRAs, contribution limits apply to Roth IRAs. In addition, with a Roth IRA, your allowable contribution may be reduced or eliminated if your annual income exceeds certain limits. Contributions to a Roth IRA are never tax deductible, but if certain conditions are met, distributions will be completely income tax free.

Please note, changes in tax laws may occur at any time and could have a substantial impact upon each person’s situation. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional.

Unless certain criteria are met, Roth IRA owners must be 59½ or older and have held the IRA for five years before tax-free withdrawals are permitted. Earnings withdrawn prior to 59 1/2 would be subject to income taxes. Additionally, each converted amount may be subject to its own five-year holding period. Converting a traditional IRA into a Roth IRA has tax implications. Investors should consult a tax advisor before deciding to do a conversion.

IRA tax deductibility and contribution eligibility may be restricted if your income exceeds certain limits, please consult with a financial professional for more information.

There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. Any opinions are those of the author and not necessarily those of Raymond James.
Future investment performance cannot be guaranteed, investment yields will fluctuate with market conditions.