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Roth IRA’s: The retirement tax advantage

March 23, 2021

Short-term saving goals for a vacation, home renovation or car can be easy to keep at the top of our mind, but saving for something long-term that can be more than 20 to 30 years away–is a challenge. On top of trying to save for retirement, the rules for where, how and when to save are always changing. One thing is for sure, it's never too early to start a holistic retirement plan.

There are many different types of accounts you can put into your retirement plan, but one with many benefits is a Roth Individual Retirement Account (IRA). Implied by the name, this is an account owned by one person. The biggest difference from a Roth to a Traditional IRA is the tax treatment. Traditional accounts are funded with pre-tax money, while Roth accounts are funded with after-tax money. This means when you contribute to a Traditional account, that contribution is tax deductible. With a Roth, you will still be paying the taxes on your contribution; however, money taken out of a Roth in retirement will be tax free.

You may begin thinking now, “why would I want to pay taxes?” It comes down to your personal beliefs for what your income and tax bracket will be in the future. The United States is at historically low income tax rates which are already slated to move up beginning in 2026, if not sooner. A Roth IRA also allows for a reduced required minimum distribution amount starting at age 72, this can reduce taxable Social Security benefits, and a reduced taxation of inherited retirement plan assets. While there are other benefits for owning a Roth IRA as well, it isn’t too late to make the move. A Roth conversion can occur today, you don’t have to start from scratch.

An underutilized strategy for retirement is a multi-year Roth IRA conversion plan. This is simply taking money from a Traditional account, reporting it as income to be taxed and placing it into a Roth IRA. While you will be paying taxes now, it's important to create the plan and understand the amount of taxes you can afford now in order to save on a tax bill further into retirement. You can do a Roth conversion either before or during retirement, both plans can be appropriate depending on your person circumstances.

If you want to open a Roth account, have questions on retirement in general or want to start building a holistic retirement plan, we are here for you. Since 2014, we have been affiliated with TS Prosperity Group, which assists many clients in small Midwestern towns including North Dakota, Iowa, Nebraska and Illinois with their investment and retirement needs. If you would like to schedule a meeting with a TS Prosperity Group team member, read more on our Investments page or call at 1-844-487-3030 (toll free).

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Matt Riley - Fiduciary Officer, VP, ChFC

Matt Riley currently serves as a Fiduciary Officer and VP for TS Prosperity Group (TSPG), helping clients across the Midwest meet their prosperity goals through investment and estate planning. Matt is a proud Illinois State University Alumni, receiving his B.S. in Finance with an emphasis in Financial Planning. He has continued his education journey, earning other designations including the Chartered Financial Consultant designation. 

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At The Bank of Tioga, we IGNITE PROSPERITY® by helping our clients do more with their money. Whether it’s saving a little extra cash each month or accomplishing a long-term strategy, our goal is to help you transform your financial life. Call and schedule an appointment today, one of our team members would love to help you do more with your money at The Bank of Tioga. The Bank of Tioga has two locations in North Dakota. For more information visit thebankoftioga.com or call 701-664-338 for Tioga or 701.965.6333 for Crosby.

Investment products provided by TS Prosperity Group are: • Not a Deposit • Not FDIC Insured • Not Insured by any Federal Government Agency • Not Guaranteed by the Bank • May Go Down in Value