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What is an IRA ?

An IRA is an “Individual Retirement Account”. It's basically, a savings account for those who are working, which offers tax breaks that allow you to save for your retirement, if you qualify. In most cases, the movement of money in these accounts is usually a three stage process: First, the deposit is tax deductible going in …. Then, it grows tax deferred while sitting there ….  And at some point in the future, it will be taxed on the withdrawal. This is the norm, but there are always circumstances that can change everything.

Please understand, an IRA is not an investment; it's just a nest in which you keep your investment eggs in. These eggs might be stocks, bonds, mutual funds, annuities, cash or many other possible assets. The most common types of  IRAs are those accounts that you open on your own directly with a financial institution. As with most of these plans, there are annual contribution limits and restrictions that may apply. You may be opening one because you’re a self-employed (one man shop), or a small business owner, or you may need to rollover a plan from your employer, because you’re retiring or just changing jobs. The reasons for opening an IRA could be plenty. There are several different types of IRAs, including Traditional IRAs, Roth IRAs, SEP IRAs and SIMPLE IRAs. Most people needing to do a rollover from their employer will be rolling their funds over into a traditional IRA or a ROTH IRA. ....more information

What is a Traditional IRA ?

It's a retirement savings account that offers a tax benefit (tax deduction) on the front end of your account. Each year you make a contribution into a Traditional IRA account, there usually is a tax deduction allowed, based on your yearly income and the amount contributed to your IRA account. This contribution is then allowed to grow tax deferred until the time that you withdraw it from your account. For most, this withdrawal will then be taxable, although different circumstances may apply. Generally speaking, when thinking about withdrawing funds from an Traditional IRA, there are two magical ages to keep in mind,  59 ½ and 70 ½ . Baring a few allowances, any withdrawals prior to age 59 ½ , may result in a 10% penalty plus the possibility of income taxes on the amount withdrawn. As with most of these plans, there are annual contribution limits and restrictions that may apply. (Always check with your tax advisor) ....more information

What is a Roth IRA ?

A Roth IRA is a retirement savings account that allows your deposited money to grow tax deferred like a Traditional IRA, without the upfront deduction of your deposit .…BUT .… When properly executed provides tax-free distributions when withdrawn from the account. You fund a Roth with after-tax dollars, meaning you've already paid taxes on the money you put into it. In return for no up-front tax break, your money grows and grows tax deferred, and when you withdraw it at retirement, you pay no taxes. That's right - every penny goes straight in your pocket. As with most of these plans, there are annual contribution limits and restrictions that may apply. (Always check with your tax advisor) .....more information

What are the differences between the two ?

There are many differences between these accounts, but one of the most talked about is:  When you pay your income taxes !  With a Traditional IRA you usually pay the taxes when you withdraw the money in retirement. At that time you initial deposit as well as all of the tax deferred interest will be considered taxable. With a Roth IRA it's the exact opposite. You pay the taxes on the front end like any other normal account. But the real power of this account is in the back end. A Roth IRA can grow tax deferred year after year, without causing any taxation ….. And …. When done properly, all distributions on the back end, are tax free.  Remember, in both traditional IRA’s and Roth IRAs, your money grows tax deferred while it's in the account. …. But only the Roth IRA has the ability to offer TAX FREE distributions. (Always check with your tax advisor) ……more information

Still Working ? 401(k) Maybe ....

These plans are considered to be a defined contribution plan established by employers.  They allow eligible employees to make contributions directly from their paychecks prior to any tax calculation, by salary reduction amounts they have chosen. Sometimes these plans will have an incentive that will offer some type of matching percentage on top of a portion of the money you have put in.

Like most qualified plans, including IRA, these accounts are allowed to build-up there accumulations on a tax deferred basis. When you distribute money from a 401(k), it’s treated as a taxable event. Many times when a person retires or decides to leave their employer, they will rollover or transfer their 401(k) into an IRA outside of their work environment. Here, it will continue to grow tax deferred until it is withdrawn, usually causing a taxable event.

"The 401K Fallout" video

Recently, it seems that there has been a lot of press relating to excessive fees and administrative costs relating to 401(k) plans. In some cases, lawsuits are being filed by their own retirement plan participants, who claim the companies have charged them millions of dollars in excessive fees and administrative charges within their retirement plans. Some of these companies that have showed up in the news are, Lockheed Martin Corporation, International Paper Company, Mass Mutual and Ameriprise Financial Inc. Despite these issues, 401(k) plans are still a very popular way for people to save for their retirement. As with all of these plans, there are conditions and restrictions that may apply. (Always check with your tax advisor)  .....more information

What are Roth Conversions ?

Roth Conversions are where you take a portion of your IRA or 401(k) and declare it as taxable income when you do the conversion. By doing this, you have caused a taxable event for that year on the amount of money you have chosen to convert to a Roth IRA.. ….. BUT …. When done correctly, from this point on, your Roth IRA  account can accumulate  and grow in value, without having to worry about any future taxation (under current law). This includes while growing as well as on distribution.  The goal here is to create a tax free environment for this money….. For me …. As well as ….For my beneficiaries. Also, there are no required distributions in a Roth IRA account at age 70 ½ like in an Traditional IRA. As with all of these plans, there are conditions and restrictions that may apply. (Always check with your tax advisor)

Can someone over age 70 ½ convert their IRA to a Roth IRA? 

Yes, but not all of it. A Roth IRA conversion is a rollover from an IRA to a Roth IRA and a required minimum distribution cannot be rolled over (or converted to a Roth IRA). The first dollars out of a traditional IRA once the client is over 70 ½ are deemed to satisfy his required minimum distribution and that amount can never be converted to a Roth IRA. Once the required amount is withdrawn for the year, then the balance of the account is eligible to be converted.

Are there any income limits for doing a Roth conversion?   No. There are no income limits to convert IRA funds to a Roth IRA. Any IRA owner can do a conversion. There is also no limit on the dollar amount of IRA funds that you can convert to a Roth IRA. There used to be a $100,000 conversion income limit, but that was permanently repealed for 2010 and later years.

What Plan is best for YOU to grow your money for Retirement?

Let us help educate you on what could work best for your family now... and ... in the future.....more information  

New IRS Roll-Over Rules

Contact us at 704.542.0447 to see what Retirement Plan will fit your Next Phase.

This material is for informational purposes only and is not affiliated with the U.S. government or any governmental agency. It is not intended to provide any tax, legal or investment advice or provide the basis for any financial decisions.
Please consult a qualified professional before making decisions about your financial situation. The Insurance Advisors of Next Phase Financial are not Licensed or Practicing Physicians and are not qualified to give medical advice


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