7 Ways to Plan Better with Roth IRAs

The topic of this episode of the Ready for Retirement podcast is Roth IRAs. A Roth IRA allows your money to grow tax-free and provides fewer limitations than other investment accounts. James outlines 7 of the main benefits of using Roth IRAs in your portfolio to strengthen your retirement funding.

Unlike other investment accounts, you are able to withdraw your contributions at any time as long as you have met the 5-year rule, and these funds are not subject to the required minimum distributions that other investment accounts require.

Also, even though Roth contributions are not included in your provisional income, if your income prohibits you from contributing to a Roth IRA usually, you could open up a spousal Roth IRA account and/or look into doing a backdoor Roth conversion from a traditional IRA account.

Finally, Roth contributions are not included in the IRMAA calculation, so Roth IRAs can help your Medicare Part B and Part D premiums stay lower than contributions to other accounts that would be considered in the IRMAA.

If you have questions about Roth IRAs, backdoor conversions, or anything else discussed on today’s retirement podcast, reach out to James or to your personal financial advisor for more information!

Key Points:

1. What is a Roth IRA?
   • An investment account that allows your after-tax contributions to grow tax-free
2. 7 benefits of using Roth IRAs
   • Contributions to Roth IRAs are available to withdraw at any time
     • You do not have to wait until the typical 59.5 age to withdraw your contributions
     • You cannot, however, withdraw the growth until that time
   • 5-year rule
     • Your account has to be opened and funded for 5 years before you can withdraw the growth or earnings
     • This timeline only pertains to the date you did your first contribution
     • This rule also applies to your beneficiaries
   • Backdoor Roth conversions
     • If you are unable to contribute to a Roth IRA due to income limits, you can get around this rule
     • You may be able to put money into a traditional IRA and convert it to a Roth IRA
       1. Fill out form 8606 and abide by the aggregation rule
     • Talk to a financial planner
   • Not subject to required minimum distributions
     • Unlike other types of investment accounts, you are not required to take distributions at a certain age
     • However, there are required minimum distributions for your beneficiaries
   • Not included in provisional income
     • Gross income + tax-free income + 50% Social Security benefit
     • Managing the big picture to reduce your overall tax bracket
   • Help keep Medicare premiums low
     • Roth not included in IRMAA calculation
     • Can help lower your Medicare Part B and Part D premiums
   • Spousal Roth IRAs also available
     • Both of you can contribute to both accounts – up to $14,000 per year
     • Regardless of your working status

Retirement Podcast Timestamps:

0:26 – What is a Roth IRA?

2:02 – Contributions to Roth IRAs are available to withdraw at any time

3:27 – 5-year rule

6:01 – Backdoor Roth conversions

11:07 – Not subject to required minimum distributions

14:03 – Not included in provisional income

20:06 – Help keep Medicare premiums low

22:24 – Spousal Roth IRAs also available

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