Retirement Funding

One of the most popular and common retirement plans, IRA's, allow you to invest a portion of your yearly earnings tax deferred. This means the money you invest in an IRA grows without taxes being owed until you withdraw the funds. In addition, you may be able to take a deduction for the amount you put into an IRA each year.

Roth IRAs are similar to traditional IRAs, but the money you contribute is taxed differently. You aren't allowed to deduct your contributions from your yearly income taxes, but as long as you leave the money in the account for at least five years and are 59 ½ when you withdraw it, you pay no taxes on the money you withdraw. Not only will you enjoy the tax free withdrawals of a Roth IRA, so too will the beneficiaries you name. In addition, you can also convert money from a Traditional IRA to a Roth IRA during your lifetime. We work to determine first if our clients qualify for this conversion and then advise them on how much to convert each year. Distributions made prior to age 59 ½ may be subject to a federal income tax penalty. If converting a traditional IRA to a Roth IRA, you will owe ordinary income taxes on any previously deducted traditional IRA contributions and on all earnings.

The Roth IRA offers tax deferral on any earnings in the account. Withdrawals from the account may be tax free, as long as they are considered qualified. Limitations and restrictions may apply. Withdrawals prior to age 59 ½ or prior to the account being opened for 5 years, whichever is later, may result in a 10% IRS penalty tax. Future tax laws can change at any time and may impact the benefits of Roth IRAs. Their tax treatment may change

401(k)s (named after the section of the tax code that deals with them) are retirement savings plans sponsored by employers. They allow you to contribute a portion of your income to an investment account. (Most contributions are made before taxes. Some plans allow you to contribute after tax income as well). You have a certain amount of discretion in choosing which investments to hold within your account. Many employers match their employees' contributions and some companies are now offering a Roth 401(k).

403(b)s are similar to 401(k)s, but designed for employees of non-profit organizations, such as charities, colleges or churches. These employers often don't make matching contributions. 403(b)s may allow you to contribute additional funds called “make-up contributions” if you failed to maximize the amount allowed for a previous year. Most of the rules are the same as those that govern a for profit company.

When changing jobs or retiring, it is not uncommon to have a decision to make regarding the distribution of 401(k) and 403(b) retirement plans. There are four options that we help to guide our clients through:

• Leave the money in his/her former employer’s plan, if permitted;
• Roll over the assets to his/her new employer’s plan, if one is available and rollovers are permitted;
• Roll over to an IRA; or
• Cash out the account value

CLICK HERE to download IRA Rollover Guide

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