August 5, 2019

Part 1: Three ways to get your money growing tax-free in a Roth

If you are like so many investors out there realizing that we are in a low set of tax brackets, and aren’t excited about the thought of what they will be down the road, then you want a Roth. Roth retirement accounts are funds that have had taxes paid on them, but once they are in the Roth they grow tax free! Essentially there are two common types of Roth accounts, and four ways to get money into them. Let’s look at the different accounts and the ways to fund them to see which is best for you.

Roth employer plans-401(k), 403(b) etc.
These are becoming more and more available as employers and employees alike are realizing the benefits of this type of account. These also give us the chance to get more money in a Roth account with fewer restrictions. If you work for a company that has this option you can fund it:

  • Up to $19,000/yr. (for 2019)-can’t be more than your earned income for the year.
  • Up to $25,000/yr. (for 2019) if 50 or older-can’t be more than your earned income for the year.
  • NO Phase-out for high income earners.
  • Some companies allow you to contribute to the Roth option and still qualify for the company match (which will go in the pre-tax option).

Roth IRAs
Roth IRA’s allow you to fund them three different ways, let’s look at the all the ways and how they are different:

  • Roth Contributions
  • Must have earned income matching or exceeding the amount of the contribution
  • Max of $6,000/yr. (for 2019)
  • Max of $7,000/yr. (for 2019) if 50 or older
  • Max amount phases-out if income is over $122,000 for single tax filers and $193,000 for married tax-filers.
  • Can’t contribute at all if income is over $137,000 for single or $203,000 for married.
  • Back-Door Roth Contributions
  • If you are over the income limits you can contribute non-deductible funds to your Traditional IRA with the same maximums as above, and then convert them over to your Roth IRA.
  • You don’t get the tax deduction when putting them into the Traditional IRA.
  • These funds will count as taxable income (just as typical Roth IRA contributions do).
  • Roth Conversions
  • Take funds already in your Traditional IRA and convert (or move) them to your Roth IRA.
  • You don’t need earned income.
  • No income limit phase-out.
  • No limit of how much you can convert.
  • These funds will count as taxable income.
  • Best to pay taxes with outside money-Don’t pull $10,000 from your Traditional IRA and only put $8,000 in your Roth-you need to put in the whole $10,000.
  • Allows you to pay taxes now (if in a lower tax bracket) and have the funds grow tax free, instead of growing tax-deferred and pulling out at a later time in a higher tax bracket.

Whether you are still working and want to build tax free assets for retirement, or you are already retired and want to keep more of your hard earned retirement funds for yourself-Roth retirement accounts can be a great way to do that. Give us a call or stop in to see us to see what option is best for you!

Securities offered through Kalos Capital, Inc. and Investment Advisory Services offered through Kalos Management, Inc., both at 11525 Park Woods Circle, Alpharetta, GA 30005, (678) 356-1100. C. Curtis Financial Group is not an affiliate or subsidiary of Kalos Capital, Inc. or Kalos Management, Inc.