7 Little-Known (But Important!) Benefits of Roth IRAs
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- Опубліковано 30 чер 2024
- A Roth IRA is a wonderful account to build a tax-free income, but there are little rules and nuances about these accounts that enable us to get even more out of them and plan our finances even more effectively with them.
In today’s video James Conole is going to share with you seven little-known Roth IRAs benefits so you can become a better financial planner.
Learn the tips & strategies to get the most out of life with your money.
⏰ TIMESTAMPS
00:00 - Introduction
1:30 - Roth IRA Benefits
2:15 - Roth IRA Investing
3:40 - Roth IRA Tips
4:45 - Tax-Free Income
6:55 - Financial Planner's Retirement Tips
8:45 - Roth IRA & Financial Planning
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For even more clarification, according to Michael Kitces: “Accordingly, it's also worth noting that because the 5-year rule for Roth conversions merely leaves the withdrawal of conversion principal potentially subject to the early withdrawal penalty, any other exceptions to the early withdrawal penalty can still shelter the Roth conversion amount from the penalty. **Thus, withdrawals within 5 years of conversion by someone who is already over age 59 1/2 are not subject to the early withdrawal penalty, regardless of the 5-year conversion rule, simply because being over age 59 1/2 itself is an exception to the penalty!”**
Glad it was helpful!
a great time to do roth backdoor conversions is when you have already retired but havent taken social security, you will be transferring money from your traditional ira into a roth and you will have to pay tax on the money you withdraw from your traditional ira but since your income will be lower your tax will be less...this works pretty well from retirement age until 70 which is when your social security will yield the largest check.when you figure how much you want to move keep in mind that if your magi income is over a certain amount your medicare cost will be penalized.
Love your videos. Very informative. Thank you.
Always the best content via James Conole! Thank you very kindly.
My pleasure!
Great Video!
Great info! Husband and I are in the process of retiring and love your channel!
Thank you for the information, I just learned about the spousal ROTH eligibility, good stuff. Also, I did not know about the withdrawal additional tax benefits, very cool
Glad it was helpful!
The best honest CFP !
I wish I had watched this 10 years ago, but some changes in how we do things will benefit us greatly.
I did not know the 5-year rule applied to every single conversion separately. You are awesome! Thank you!
Found in IRS Pub. 590B
As a value investor, I am certainly using this time to double down on high quality, long-term value investments. Once in a blue moon type deal where we get these big blue chips on such steep discounts!
Glad it was helpful!
‘’Courage taught me no matter how bad a crisis gets ... any sound investment will eventually pay off."
Well said!
These facts are for federal income taxes. States have their own rules which can be worse. NJ penalizes all early withdrawals from tax-advantaged accounts I think.
Great job explaining the nuances of the 5 year rule!!!
Question: does the IRS recognize ALL conversions FIRST before ANY growth?
Example: The past seven years I have converted 50K per year on the15th of April.
1st year conversion is now worth 90K,
2nd conversion is now worth 80K,
3rd conversion is now worth 70K,
4th conversion is now worth 60K,
5th conversion is now worth 50K,
6th conversion is now worth 40K,
7th conversion is now worth 30K.
How much can I withdraw today, penalty free based only on the 5 year rule?
Good question! I also wonder if I converted say $50k one year and the market tanks like it has and the $50k original conversion drops to say $30k and with due time eventually recovers 2 years later, would the growth be from the original $50k or the diminished $30k balance? Likewise, you've made $350k in total conversions prior to any growth, I presume you could withdrawal $350k and any growth from the first 2 years if the 5 year period has been completed. I do know that if you do a conversion in December, the rules give you credit towards the 5 years all the way back to January 1st of that year. If you make a conversion for this year, but delay until April next year, the 5 year clock will begin as if the conversion was made on January 1st of 2023. So there is that bit of info to know. I shoot for the 15% effective federal tax each year and have been able to convert approx $80k annually versus about $20k due to the higher tax brackets, which may end January 1, 2025 if I understand the possible conclusion of the current brackets. Paul, are you intending to keep any funds in your traditional IRA? I have about $100-150k in the TIRA that I think I will not convert and the RMD's in 2 years will have little to no tax problems and I'd have the option to do a QCD(Qualified Charitable Donation) when I reach the right age and it has a good fit for me. Best wishes to you!
Glad it was helpful!
I am curious in Roth IRa ,can the person can still contribute if he withdrawn a money from unearned income like mutual fund(non retirement fund) and AGI went over from requred income due to withdrawal. Thanks
For a Married couple filing jointly where one works and the other does not, can both Roth IRAs be contributed $7,500 or is that the total for both?
You should review and clarify your 5 year comments. A conversion is considered a contribution, so if the account has been open for 5 years the only 5 year rule that applies to a conversion is related to the 10% penalty for withdrawals before 59.5. I would include a link to the Forbes article that says this, but then youtube would delete my comment.
Thank you for sharing!
The IRS Pub. 590B says differently. Every conversion has it’s own 5-year rule.
I have a question on Roth rollovers.... Due to the 250,000 limit on SIPC insurance of a single investment account.... My TD Ameritrade account has over 400,000 in it. I want to rollover the excess to a Schwab Roth IRA account. can I do this under current IRS rules and if so can I make more than one a year.... say I have 750,000 and want to roll 250000 to Schwab and 250000 to e-trade? Thank you... your you tube was very informative.
There’s not a limit on direct trustee to trustee transfers. You are just limited to one indirect rollover within a 12-month period.
What’s your opinion about pulling out $40K of my contributions to buy 2nd property? This would leave me with $20K of growth in the account. Already rocking the 401K maxing out each year with dollar cost averaging.
You probably just have to run the numbers. Typically one doesn't want to ever tax tax-free monies and mix it with something that will be taxable. There are ways to put real estate in a Roth(self directed roth) and keep it tax-free, but it can be quite cumbersome to set up and do everything correctly. SDR's have a lot of rules and complicated restrictions.
Depends, as always.
With properties at near all time highs I would wait for the market to drop significantly. Of course depends on if this second property is purely an investment or a necessity (housing an aging parent for example).
Question; I have a Roth 401(k) and I also have a Roth Fidelity. I could contribute up to $7000 because of my age. Can I contribute $7000 into each account or does it have to be a combined total of $7000?
Roth 401ks have different yearly limits than Roth IRAs.
Jessica is correct that IRA and 401k have vastly different contribution limits and one can contribute to the maximum on both. Something some work retirement plans allow are called "in plan conversions" where the pre-tax traditional 401k can be converted into the Roth 401k, with the understanding that this would likely be a tax creating event while you are still working for that employer.
Correct, both!
@@jessicadorricott52 Thank you for your reply.
@@RootFP thank you Sir. Merry Christmas 🎁🎄
If I contribute 10k per year for five years to my Roth 401k from age 45-50 , then leave my job at age 50 and roll the Roth 401k into my Roth IRA , can I then take that 50k contribution out at any time from my Roth IRA ?
Make sure to follow the 5-year rule timing!
"The more tax-free income you have the higher your standard of living will be in retirement"
Isn't true, picking the IRA where you pay the least amount of taxes will provide the higher standard of living. While a Roth IRA is tax-free in retirement it is not tax-free when you make the contribution and the question is will you be in a lower or higher tax bracket in retirement, of course this includes all taxes
Glad it was helpful!