How Roth IRAs Could Lower Your IRA Distribution Taxes

How Roth IRAs Could Lower Your IRA Distribution Taxes thumbnail image

How Roth IRAs Could Lower Your IRA Distribution Taxes

One thing you can consider to save on federal income taxes during your retirement is to convert your qualified tax money into a Roth account. By doing this, you could shield any appreciation on these assets from federal income taxes. Additionally, distributions from these assets will come to you free of income taxes as well. This, of course, assumes that the holding period rules are satisfied (age 59 ½ and the five year holding period).

Unlike the traditional IRAs, the owner of a Roth is not required to take distributions at age 70 ½. Also, any distributions you do take from Roth accounts are not counted for purposes of figuring income taxes on Social Security benefits. This provides Roth owners with another tax benefit that cannot be achieved from a traditional IRA.

Although an income tax must be paid if you convert your retirement money to a Roth, the potential for future tax savings could make this a good strategy. For instance, let’s consider an example where a taxpayer converts $300,000 of traditional IRA money into a Roth IRA. Let’s further assume that the Roth money is invested in a diversified portfolio of investments. If we assume over the long-term that the investments grew at 10% for 15 years, the accumulated value of this portfolio would be $1.2 million. Although the portfolio grew by $900,000, no income tax is paid in the future. Although your beneficiaries are required to take minimum distributions based upon their life expectancies, any future appreciation in the account will come to them free of income taxes. Please remember that investments in traditional and Roth IRAs are subject to various levels of market risk, depending on the type of investments held in the accounts. Therefore, you should never assume that your IRA investments will perform in the same way as was explained in this example. Your results will likely vary from this example.

Stay Up To Date With Financial News from Anchor Financial Group

  • How Roth IRAs Could Lower Your IRA Distribution Taxes

    Save on federal income taxes during your retirement....

    > Read More
  • Helping Preserve Your Retirement Assets by Taking Smaller Distributions

    Some people think they should never spend their principle, but this can be a mistake....

    > Read More
  • An Alternative to Tax-Free Bonds

    While tax-free bonds can be a popular source of tax-free income....

    > Read More