Shaun McKeever, CRPC

• You can benefit from tax-advantaged investing in an IRA.
• Consider contributing to an IRA even if you participate in a qualified employer sponsored-retirement plan (QRP).
• Find out which type of IRA – Traditional or Roth – is right for you.

IRAs can help you meet your retirement goals

Even if you already participate in a qualified employer sponsored-retirement plan (QRP) such as a 401(k), 403(b) or governmental 457(b), an IRA can help supplement these savings. Similar to a 401(k), IRAs offer the potential for growth in a tax-advantaged account. Over time, that can make a significant difference in your retirement savings.

Types of IRAs

Both Traditional and Roth IRAs offer tax advantages, a wide variety of investment options, the flexibility to choose whether or not to invest annually, and the same contribution limits. 

• Traditional IRA - Offers tax-deferred growth potential. You pay no taxes on any investment earnings until you withdraw or “distribute” the money from your account, presumably in retirement.¹ Additionally, depending on whether you’re covered by a retirement plan with your employer and your income, your contribution may be tax deductible.¹ 
• Roth IRA – Offers tax-free growth potential. Earnings are distributed tax-free in retirement, if a five-year waiting period has been met and you are at least age 59½, or as a result of your death, disability, or using the first time homebuyer exception. Since contributions to a Roth IRA are made with after-tax dollars, there is no tax deduction regardless of income. 
• Who can contribute to an IRA - You and your spouse, if filing jointly, can contribute to a Traditional IRA if you have earned income. You can make a non-deductible contribution to a Traditional IRA even if your income exceeds Modified Adjusted Gross Income (MAGI) deduction limits. You and your spouse, if filing jointly, can contribute to a Roth IRA at any age as long as you have earned income and are at or under MAGI phase-out limits. 
• Small business SIMPLE & SEP IRAs - SEP IRAs and SIMPLE IRAs are often offered by small businesses as a retirement plan for their employees. These plans can be ideal for small businesses with a few employees. A SEP IRA is a Traditional IRA that holds employer contributions under the SEP plan.²

IRA contribution limits and deadlines

IRS rules state how and by what date you can make your IRA contributions. IRA contributions must generally be made by April 15 for the prior tax year. If you are 50 or older, within a particular tax year, you can contribute an additional $1,000 catch-up amount each year. 

Call us to discuss the exact date for this year and the amount you can contribute, or check out IRS Publication 590 found here:

• IRS Publication 590-A 
• SEP Plan FAQs

Retirement plan distribution options 

When you change jobs or retire, you generally have four options for your retirement plan assets:

1. Roll assets to an IRA
2. Leave assets in your former employer’s plan, if the plan allows
3. Move assets to your new/existing employer’s plan, if the plan allows
4. Cash out through what’s called a “lump sum distribution,” pay taxes and perhaps a 10% IRS tax penalty

There are advantages and disadvantages to each option. The best one for you depends on your individual circumstances.³  Since your retirement plan savings may represent a substantial source of income in retirement it’s important to think about all of the following:  

• The difference in fees and expenses between the QRP and IRA
• When penalty-free distributions are available
• Your need for help making investment decisions and other services offered
• Any special considerations regarding your employer stock
• Timing of required minimum distributions (RMDs)
• Protection of assets from creditors and bankruptcy

We can sit down and look at your choices together so you can decide which one makes the most sense for you. Before you make any decision or take any action, speak with your current retirement plan administrator and tax professional. 

Next steps

• Make an appointment with us to go over your IRA choices.
• Fund your IRA.
• Find out if you can deduct your Traditional IRA contribution. 

¹Traditional IRA distributions are generally taxed as ordinary income. Qualified Roth IRA distributions are federally tax-free provided a Roth account has been open for more than five years and the owner has reached age 59-1/2 or is disabled or using the first-time homebuyer exception, or taken by their beneficiaries due to their death. Qualified Roth IRA distributions are not subject to state and local taxation in most states. Distributions from Traditional and Roth IRAs may be subject to IRS 10% additional tax if distributions are taken prior to age 59-1/2.

²For SIMPLE IRAs, withdrawals are subject to ordinary income tax and may be subject to an IRS 10% additional tax for early or pre-59 ½ distributions. The additional tax increases to 25% if taken during the first two years of plan membership.

³Please keep in mind that rolling over assets to an IRA is just one of multiple options for your retirement plan. Each of the following options is different and may have distinct advantages and disadvantages.

1. Roll assets to an IRA
2. Leave assets in your former employer’s plan, if plan allows
3. Move assets to your new/existing employer’s plan, if plan allows
4. Cash out or take a lump sum distribution 

When considering rolling over assets from an employer plan to an IRA, factors that should be considered and compared between the employer plan and the IRA include fees and expenses, services offered, investment options, when penalty free withdrawals are available, treatment of employer stock, when required minimum distributions begin and protection of assets from creditors and bankruptcy. Investing and maintaining assets in an IRA will generally involve higher costs than those associated with employer-sponsored retirement plans. You should consult with the plan administrator and a professional tax advisor before making any decisions regarding your retirement assets.