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Ask The Advisor - IRAs

Ask The Advisor - IRAs

May 14, 2024

IRAs

Contributing to an Individual Retirement Account (IRA) is a way to invest and increase your tax-advantaged retirement savings apart from or in addition to a 401(k). There are key differences in the two main IRA types to keep in mind:

Traditional IRA:

  • Contributions are made pre-tax and may provide for an immediate tax break for those meeting certain income requirements.
  • Like a Traditional 401(k), earnings grow tax-deferred but are taxed upon withdrawal in retirement at ordinary income tax rates.
  • Drawback: Required minimum distributions (RMDs) must be taken starting after age 73, even if funds aren’t personally needed.

Roth IRA:

  • Contributions are made with after-tax dollars but are not tax-deductible.
  • Earnings grow tax-free and withdrawals of both contributions and earnings are tax-free after age 59½ if certain conditions are met.
  • Advantage: No RMDs are required during the account owner's lifetime.
  • Drawback: Income limits apply for eligibility ($240,000 for joint filers in 2024).

Account Access:

  • Traditional IRAs: before age 59 ½ your withdrawal will be taxed as ordinary income plus a 10% penalty on the early withdrawal. Once you reach age 59 ½, you can withdraw contributions and earnings without the penalty, but withdrawal will be taxed as ordinary income.
  • Roth IRAs: contributions can be withdrawn at any time, penalty-free and tax-free allowing for more flexibility than a Traditional IRA.

Choosing Your IRA

Consider factors like:

  • Current income and tax bracket
  • Expected income and tax bracket in retirement
  • Retirement savings goals and timeline

Conclusion

Both Traditional and Roth IRAs offer valuable benefits for retirement saving, but the best choice for you depends on your individual tax situation and long-term financial goals. You can contribute a combined total IRA limit of $7,000 in 2024, or $8,000 if you are over age 50; it may be prudent to have a mix of both Traditional and Roth style IRA accounts after having discussions with your advisor.



Important Information:

The views expressed in this publication are those of the author and do not necessarily reflect the views and opinions of Cetera Advisor LLC or Burrows Capital Advisors LLC. The information provided in this publication is for informational purposes only and is not intended as legal, financial, investment, tax, or professional advice. Nothing in this publication constitutes a solicitation, recommendation, endorsement, or offer by Burrows Capital Advisors LLC or any affiliated entities. This publication is based on research and analysis conducted under specific circumstances and may not be applicable to all situations. It is recommended that investors conduct their own analysis or seek professional advice before making any decisions based on the information provided in this publication. The authors and publisher do not guarantee the completeness or suitability of the information contained herein and disclaim any liability for any direct, indirect, or consequential loss or damages arising from the use of, reliance on, or interpretation of this information. Any links to external websites provided in this publication are for informational purposes only and do not imply endorsement or approval of the linked content. All rights are reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the authors and publisher.

Investments in securities do not offer a fix rate of return. Principal, yield and/or share price will fluctuate with changes in market conditions and, when sold or redeemed, you may receive more or less than originally invested. No system or financial planning strategy can guarantee future results. Securities and advisory services offered through Cetera Advisors LLC, member FINRA/SIPC, a broker/dealer and a Registered Investment Adviser. Cetera is under separate ownership from any other named entity. Burrows Capital Advisors, LLC, 2450 South Shore Blvd., Suite 220 League City, TX 77573.