Know This End-of-Year Roth IRA Strategy!

Know This End-of-Year Roth IRA Strategy! Bulman Wealth

One way or another, Individual Retirement Accounts will be involved in retirement planning these days. Whether you want to roll over a 401(k), time your withdrawals optimally, or make catch-up contributions, your IRA strategy may be one of the key components of your income strategy. However, there is a little-known timing strategy to get more out of a Roth IRA.

What is the Roth IRA and When is it Useful?

Roth IRAs are governed by certain rules that allow you to withdraw funds tax-free after a certain age and time period. Roth IRAs are funded with post-tax dollars, so your contributions are still considered income, whereas Traditional IRAs reduce your contributions to your taxable income for the current year, and they are taxed as regular income when you withdraw them. You should also be aware that there are contribution limits that reset each year.[1]

An IRA may be used as part of an income strategy to control taxable income and tax brackets over the course of your retirement timeline.

Why Open a Roth at the End of the Year?

You can withdraw from a Traditional IRA anytime as long as you are 59.5 years old.[2] What if you don’t already have a Roth IRA and want to take advantage of its tax-free withdrawal benefits? You’ll probably consider opening a Roth IRA… However, you cannot withdraw penalty-free from the account unless you are 59.5 years old and have held it for five calendar years. Furthermore, your contributions will be subject to IRA contribution limits for that year. [3]

Here’s what you need to know: If you’re thinking about establishing a Roth IRA for whatever reason, do it before December 31st, and max out your yearly contributions for the present year… Then, do it again after January 1st! This way, you can max out your contributions for both years since your account will have been established for the current year and the next. You can withdraw from the IRA after four years rather than five if you rush in on December 31st, and you may contribute the maximum for both years of the current year, allowing you to fund your account faster.

Your IRA strategy may be crucial to your retirement plan, but there is no one right way to do it. Your strategy is unique to you and your financial situation, so if you have questions about if a Roth IRA can work for you, sign up for a complimentary review with us today.


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