6 ROTH IRA Facts That May Surprise You

LouAnn Schulfer, AWMA®, AIF® Accredited Wealth Management Advisor® Accredited Investment Fiduciary |

ROTH IRAs can be a powerhouse of tax benefit when the account enjoys compounded growth.  Here are six more facts that may surprise you.

1)    You cannot be too young to contribute.  As long as you have earned income, age does not matter.  This was significant in our family as we gave our sons the opportunity to earn w-2 income beginning at 7 and 9 when we bought a golf driving range for them to run.  Their ROTH IRAs were opened the same year and they’ve been contributing each year since.
2)    You are not too old to contribute.  There are no top end age limits to contribute to a ROTH.  I have clients who continue to work part time in retirement and enjoy socking away as much money as they can into their ROTH accounts because they realize ROTH’s lucrative tax benefits.
3)    You do not have to take RMD’s at 72.  Required Minimum Distributions must be taken from accounts that you’ve made pre-tax contributions to such as IRA’s as well as employer sponsored retirement accounts, including the ROTH portion of a 401(k).
4)    Non-spouse or non-eligible designated beneficiaries must take RMDs from inherited ROTH IRAs.  ROTH IRA owners and spousal beneficiaries are not required to take distributions, even after age 72.  However, if you inherit a ROTH IRA from someone other than your husband or wife and are not an eligible designated beneficiary, you fall under required distribution rules.  Distributions are not subject to ordinary income tax, however you will be subject to penalties if you do not follow the RMD rules.  Consult your tax or finanicial advisor for your specific RMD calculation each year and how the rules may apply to you.
5)    Conversions to a ROTH IRA for most IRA owners are allowed regardless of income.  Unlike contributions, which are allowed only if your income is below a given threshold, (updated by the IRS annually), conversions are allowed in any amount regardless of the money you earn.  You’ll pay ordinary income tax on the amount you convert, but you can convert any amount you wish.
6)    The ROTH IRA got its name from its chief legislative sponsor, Senator William Roth of Delaware, as part of the Taxpayer Relief Act of 1997.

If you and your family members do not already own ROTH IRA’s, you may consider whether a ROTH IRA is a good option for you.  If you do own a ROTH, be sure you are making the most of it by considering your allowed contributions, possible conversions, the investments inside of the account, and understanding your distribution rules.

Remember that future tax laws can change at any time and may impact the benefits of Roth IRAs.  Withdrawals from a ROTH account may be tax free, as long as they are qualified.  Withdrawals prior to 59 ½ or prior to the account being opened 5 years, whichever is later, may result in a 10% IRS penalty tax. 



This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.

LouAnn Schulfer is co-owner of Schulfer & Associates, LLC Financial Professionals and can be reached at (715) 343-9600 or louann.schulfer@lpl.com.  www.SchulferAndAssociates.com

Securities and advisory services offered through LPL Financial, a Registered Investment Advisor.  Member FINRA/SIPC.