Category Archives: Roth IRA

Questioner asks: “Should I roll my SEP IRA into a regular IRA or a Roth IRA?”

There are two issues to consider in answering this question.

  1. If you roll a SEP IRA into a regular or rollover IRA, assuming you do it right, there are no taxes to pay and your money will continue to grow tax deferred until you begin taking withdrawals.  At that point you will pay income tax on the withdrawals.
  2. If you decide to roll it into a Roth IRA you will owe income tax on the amount rolled over.  However, the money will then grow tax free since there will be no taxes to pay when you begin taking withdrawals.

If you roll your SEP into a Roth, be sure to know ahead of time how much you will have to pay in taxes and try to avoid using some of the rollover money to pay the tax because it could trigger an early withdrawal penalty – if you are under 59 1/2 .

It’s up to you to decide which option works best for you.  If you are unsure, you may want to consult a financial planner who can model the two strategies and show you which one works better for you.

As always, check with a financial professional who specializes in retirement planning before making a move and check with your accountant or tax advisor to make sure that you know the tax consequences of your decision.

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Do you have questions about retirement? You’re not alone.

Charles Schwab recently conducted a survey of people saving for retirement and found that saving enough for retirement was the single most force of financial stress in their lives; … greater than job security, credit card debt or meeting monthly expenses.

A new survey from Schwab Retirement Plan Services, Inc. finds that saving enough money for a comfortable retirement is the most common financial stress inducer for people of all ages. The survey also reveals that most people view the 401(k) as a “must-have” workplace benefit and believe they would benefit from professional saving, investment and financial guidance.

Most people who come to see us have concluded that they need professional help.  They have some basic questions and want answers without a sales pitch.

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They know that they need to save for retirement but don’t know exactly how.

  • The want to know how much they need to save.
  • They want to know how they should be investing their 401(k) plans.
  • They wonder if they should put money into a Regular IRA or a Roth IRA.
  • They know they need to invest in the market but are concerned about making mistakes.

Only 43 percent know how much money they may need for a comfortable retirement, which is significantly lower than awareness of other important targets in their lives, including ideal credit score (91%), weight (90%) or blood pressure (77%).

“With so many competing obligations and priorities, it’s natural for people to worry about whether they’re saving enough for retirement;” said Steve Anderson, president, Schwab Retirement Plan Services, Inc. “Roughly nine out of ten respondents told us they are relying mostly on themselves to finance retirement. It’s encouraging to see people of all ages taking responsibility for their own future and making this a top priority.”

But you don’t have to go it alone.  At Korving & Company we are investment experts.  And we’re fiduciaries which mean that we put your interests ahead of our own.

Contact us for an appointment.

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What’s the Difference Between an IRA and a Roth IRA

A questioner on Investopedia.com asks:

I contribute about 10% to my 401k. I want to know more about Roth IRAs. I have one with my company, but haven’t contributed any percentage yet as I am not sure how much I should contribute. What exactly is a Roth IRA? Additionally, what is the ideal contribution to a 401k for someone making $48K a year?

Here was my reply:

A Roth IRA is a retirement account.  It differs from a regular IRA in two important aspects.  First the negative: you do not get a tax deduction for contributing to a Roth IRA.  But there is a big positive: you do not have to pay taxes on money you take out during retirement.  And, like a regular IRA, your money grows sheltered from taxes.  There’s also another bonus to Roth IRAs: unlike regular IRAs, there are no rules requiring you to take annual required minimum distributions (RMDs) from your Roth IRA, even after you reach age 70 1/2.

In general, the tax benefits of being able to get money out of a Roth IRA outweigh the advantages of the immediate tax deduction you get from making a contribution to a regular IRA.  The younger you are and the lower your tax bracket, the bigger the benefit of a Roth IRA.

There is no “ideal” contribution to a 401k plan unless there is a company match.  You should always take full advantage of a company match because it is  essentially “free money” that the company gives you.

Have a question for us?  Ask away:

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