Question:
I’m confused about the deductibility of my IRA contributions. I have a 401(k) at work. When is it better to consider a ROTH?
Answer:
The 2014 contribution limits for both Traditional and Roth IRAs are $5,500 and $6,500 if you are older than 65. While anyone can contribute to a Traditional IRA if they have earned income, Roth IRAs have income limits. If you are a single filer, the phase-out limits for the ability to fund a Roth is between $114,000 and $129,000. If you are married filing jointly, the phase-out is between 181,000 and $191,000 and if you are married filing separately, the phase-out is between $0 and $10,000.
If you are able to contribute to a 401(k) where your company provides a match, we recommend saving there first. Most companies match a percentage of your contribution. This is a guaranteed return on your money because they are giving it to you.
If you still have money to save once you reach the maximum match in your 401(k) then you need to make the decision to make a tax deductible IRA contributions or contribute to a Roth IRA. With a Roth IRA, contributions are made with after-tax money, but withdrawals after 59 ½ are tax free. Additionally, you can withdraw your contributions after five years without penalty if you needed the money. With a traditional IRA, you may qualify for a tax deduction today on your contributions, but you will pay taxes when the money is withdrawn in retirement.
If you are covered by a 401(k) or other retirement plan, the phase-out ranges for tax deductible IRA contributions is $60,000 – $70,000 for single filers, $96,000 – $116,000 for married filing jointly and $0 – $10,000 for married filing separately. If you are not covered by an employer-sponsored retirement plan, but you are filing joint return with a spouse who is covered by a plan, the phase-out range increases to $181,000 – $191,000.
At Henssler Financial we believe you should Live Ready, and that includes understanding your vehicles for retirement savings. If you have questions regarding your financial situation the experts at Henssler Financial will be glad to help. You may call us at 770-429-9166 or email at experts@henssler.com.
Disclosures
This article is meant to provide valuable background information on particular investments, NOT a recommendation to buy. The investments referenced within this article may currently be traded by Henssler Financial. All material presented is compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. The contents are intended for general information purposes only. Information provided should not be the sole basis in making any decisions and is not intended to replace the advice of a qualified professional, such as a tax consultant, insurance adviser or attorney. Although this material is designed to provide accurate and authoritative information with respect to the subject matter, it may not apply in all situations. Readers are urged to consult with their adviser concerning specific situations and questions. This is not to be construed as an offer to buy or sell any financial instruments. It is not our intention to state, indicate or imply in any manner that current or past results are indicative of future profitability or expectations. As with all investments, there are associated inherent risks. Please obtain and review all financial material carefully before investing. Henssler is not licensed to offer or sell insurance products, and this overview is not to be construed as an offer to purchase any insurance products.
