rockville financial consulting

1st Quarter 2018

As the 2017 tax filing deadline approaches, many are preparing to take advantage of IRA contributions.  As advisors, we often hear the question “Should I contribute to my Traditional or Roth IRA?”  To many of our clients’ chagrin, we usually answer this question with more questions:

  1. Do you qualify to contribute to a Roth IRA? According to irs.gov, a married couple filing jointly would need to have a Modified Adjusted Gross Income (MAGI) of less than $186,000 to make a full Roth IRA contribution for the year 2017 ($118,000 for a single person).  If you do not qualify, a Traditional IRA may be your only choice.
  2. What is your investment time horizon? Since Roth IRA contributions are not tax-deductible, the primary benefit of a Roth IRA is the ability to withdraw earnings tax-free after age 59 ½.  If you only plan to have the account for a few years before taking withdrawals, you’re not leaving a lot of time to allow earnings to accrue.  For this reason, Roth IRAs are generally more appropriate for investors with longer time horizons (5+ years).  Investors with shorter time horizons may find more value in a deductible contribution this year.

We are happy to work with you and your CPA to determine which retirement savings vehicle best fits your needs.

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