Tag Archives: IRA

What You Keep

By Larry Luxenberg  

The easy thing to do when you are investing is to look at how much your portfolio is going up or down.

But that’s not what’s really important. What’s important is how much of your investment portfolio, you get to keep and how much goes to Federal, state and local taxing authorities.

For example, an IRA defers taxes until you take the money out. Under current law, once an investor turns 70 1/2, he has to start taking money out of the IRA. This is called a required minimum distribution.

When an investor takes money out of the IRA, he has to pay ordinary income taxes on the withdrawal. This can be a third in combined taxes or even more.

If he has a Roth IRA and is over $59 1/2 and the Roth has been open five years, he probably won’t owe any taxes.

If he has a regular taxable account — no retirement savings vehicles — and owns mutual funds, he may owe taxes even if he doesn’t do any trading himself for the year. Mutual funds must distribute most of their income each year to avoid saddling their shareholders with double taxation.

In a strong stock market, like the market this year, gains accumulate in actively managed mutual funds and taxable distributions can be quite high.

Investors need to be aware not just of their investment returns but of how much of those gains they will keep. That makes a huge difference in long-term financial well being.

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Savings and Tax Time

By Larry Luxenberg  

In a month, personal income taxes are due. You still have time to fund a Regular IRA or a Roth IRA for calendar year 2015.

IRAs are a good way to save for retirement and everyone who can afford to fund an IRA, should consider doing it. There are different eligibility rules for each and which one you should use depends on many factors.

Among the key factors for picking between an IRA and a Roth are your current and future tax rates, when you’ll need the money and where it’s going.

If your tax rate is low now and may be higher in retirement, you might be more inclined to fund a Roth. If your tax rates are the reverse — high now, and low later — you’d be more likely to do an IRA.

Except for higher income people, contributions to an IRA are deductible but taxable on withdrawal. Roth contributions get no deduction but aren’t taxable if taken out after the account has been open for five years and the holder is over age 59 1/2.

If some of your money might go to a charity, a Regular IRA would be good since you won’t owe tax on the distribution (up to $100,000) if you are older than 70 1/2.

If you are younger than 50, you can contribute $5,500 to an IRA or Roth as can your spouse. Those older than 50 can contribute an extra $1,000 annually.

The younger you are, the more time your investments have to work for you. Regular contributions to IRAs or Roths can be a key part of your retirement savings.

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