Tax and Income Planning with a Roth IRA

Greetings! I trust that you are well and enjoying life.

Over the past few weeks I have been speaking to year end tax planning and relating tax planning and to the benefits of Roth IRA’s.  I want to share an additional benefit of owning a Roth in retirement that applies to tax and income planning.

Let’s look at a practical and common situation that happens in retirement. Let’s say that you have that year when you have unexpected expenses that require you to withdraw additional money from your taxable IRA accounts. Just part of life that occurs from time to time; like your automobile dying, experiencing higher than normal health care cost or the need to help a grandchild financially. Depending on your financial situation; withdrawing the additional amount from the taxable IRA might push you into a higher tax bracket, push you into a higher tier for Medicare premiums for the following two years or cause your social Security to be drawn into the tax base. The point is if you have a Roth IRA in place to draw on tax free for a certain portion of the need rather than the taxable IRA; it would allow you to avoid that higher tax bracket, increased Medicare premium and your Social Security being taxed.

We’ve all heard of portfolio diversification and the necessity and benefits of it. I want to encourage you to consider tax diversification by owning both traditional and Roth IRA’s.  Options in life are always a good thing. Take a look at converting a portion of your IRA to Roth. Yes you pay tax now rather than later, but the benefits are powerful under the right set of circumstances.

If you have questions about the above or your retirement plan, or feel that we can be of help in any way give us a call.

Best regards.

Jeff Christian CFP, CRPC

Leave a Reply

Your email address will not be published.