Saving in a Roth is a great idea, but it has its limitations.
You have a Roth IRA.
Or perhaps you are considering setting one up.
Either way, knowing the guidelines and rules for these accounts is essential.
According to a recent Kiplinger article titled “How Much Can You Contribute to a Roth IRA for 2018?,” some of these rules have changed from 2017 to 2018 while other have remained the same.
For starters, the maximum contribution has not changed.
The amount is still $5,500—unless you are age 50 or older.
Once you hit age 50, you can contribute an extra $1,000 per year as a “catch up” amount.
But not so fast.
Not everyone can contribute the maximum amount.
The amount you can contribute is also determined by your income level.
If you are single, your adjusted gross income must be less than $120,000.
If you are married and filing jointly, your income must be less than $189,000.
If you are single with an income of $135,000 or are married and filing jointly with an income of $199,000 or more, you cannot contribute to a Roth IRA.
In addition to the rules governing Roth IRA contributions, you should also know those regarding withdrawals.
What are these?
They are different than those for traditional IRAs.
Traditional IRA contributions are tax-deductible.
Withdrawals from these accounts are taxed.
Contributions to Roth IRAs are taxed when made.
This means any withdrawals can be taken free of tax as long as you are at least age 59½ and have had the Roth IRA for at least five years.
Another difference involves required minimum distributions (RMDs).
What is the difference?
Traditional IRAs require individuals to take out a specific amount of money each year starting at age 70½.
No more contributions may be made at this point.
With a Roth IRA, there are no required minimum distributions.
You can also continue to make contributions as long you are still working.
A Roth IRA account can be a useful estate planning tool as well.
Although heirs—other than a spouse—will be required to make withdrawals over time, this money will not be taxed.
An experienced estate planning attorney will be able to help you maximize your Roth IRA in your estate plan.
So, how do you find an "experienced" estate planning attorney?
First, ask around. Friends, family and other professional advisors are trustworthy sources.
Second, conduct an "organic" search on "Google" for "estate planning" near you (e.g., "Estate Planning Anytown MoKan").
Third, either way, verify! Check out the education, experience, ratings and client reviews of any attorney before you contact him or her.
In fact, I use both of these services to thoroughly vett attorneys before referring members of our "client" family for legal help in other areas of law or for matters in jurisdictions outside Kansas or Missouri.
Remember: “An ounce of prevention is worth a pound of cure.” When making your financial, tax and estate plans, do not go it alone. Be sure to engage competent professional counsel.
For more information about estate planning in Overland Park, KS (and throughout the rest of Kansas and Missouri), visit our estate planning website and be sure to subscribe to our complimentary estate planning e-newsletter while you are there.
Reference: Benzinga (April 2018) “Life Insurance Costs and Payouts at Different Ages”