Roth IRAs & Roth Conversions

When I was in college, one of my professors got really excited when he started teaching us about what’s called the Roth IRA, a Tax Classification named after Senator Roth and passed in the late 90s. He said, “I wish this is something that I had back when I was your age. I strongly encourage you to contribute to a Roth IRA.

Today, I’m going to explain how Roth IRAs & Roth Conversions work, and how you can capture their benefits.

The Basics
How does a Roth IRA work?
You make contributions into your Roth IRA. When you make that contribution, you do not receive a tax benefit on that contribution. That contribution goes into a category that what we refer to as “After-Tax.”

The power in the Roth IRA comes from delayed gratification. So although I don’t receive a tax benefit on the front end (when I make the contribution), I can have really big tax benefits on the back end& the greatest benefit comes after several years of growth.

Within my Roth IRA I can buy and sell different positions, among many other things, without any tax consequences the entire time. So while my contributions have already been taxed, there are no tax consequences on any of the growth. 

When I take my money out, all the contributions and all the growth comes out one hundred percent tax free. That can be really powerful for you, especially if you have plenty of time before you’ll need to access this money. 

Another great benefit of the Roth IRA is there’s no required minimum distributions. Meaning at age 72, you don’t have to take money out. You can leave your money in there and allow it to continue to grow tax-free.

And to my professor, and all those that have been concerned that the ship has sailed and they missed their opportunity to go into a Roth IRA, there’s a great tax benefit that you can capture too.

It’s called a Roth Conversion where we take our Traditional IRA and convert it over to a Roth IRA. If you’re interested in making this conversion, there is a tax consequence that you need to be aware of. However, after we pay the tax on it, all of the growth will be tax-free. That’s just another great way to build and protect your wealth.

If you’d like to further understand how you can potentially take advantage of Roth IRAs & Roth Conversions, schedule a complimentary consultation.

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Request a complimentary Retirement Planning consultation with one of our CPA Advisors. Submit your contact information below. 

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