Taxes are one of the most important things to consider when it comes to your retirement. You’ll likely have several sources of income in retirement that can be taxed, such as IRA distributions and Social Security benefits. But is your income tax-advantaged? A tax strategy for retirement income can help reduce your tax bill.
When money is distributed from a Traditional IRA, it’s taxed as ordinary income. In contrast, a Roth IRA is taxed with post-tax dollars. A Roth IRA can be a great asset in retirement due to its tax-free distributions, unlike traditional IRAs.
Those who are able can only contribute up to $6,000 per year if under age 50, or $7,000 per year if over age 50. But as you may know, people with income over $144,000 and couples with income over $214,000 cannot contribute directly to Roth IRAs. However, you can undergo a Roth IRA conversion to take advantage of the tax benefits of a Roth IRA.
Anyone has the option to convert any amount from a Traditional IRA, 401(k), or similar qualified retirement account into a Roth IRA or 401(k), regardless of income level. If your income strategy doesn’t include tax minimization, consider asking your financial advisor about a Roth conversion.
If a Roth conversion sounds like it could work in your retirement plan, you would pay tax on what you convert and then be able to withdraw money tax-free later. Make sure it’s the right decision for your retirement before using this strategy because Roth IRA conversions are irreversible, meaning that it’s subject to regular Roth IRA limitations: Money can’t be withdrawn penalty-free until five years after it’s converted, and typically not until age 59 ½.
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If you’re wondering how your retirement accounts may be taxed, or if you hadn’t planned for the taxes you may face in retirement, it might be worth a conversation with a financial advisor to assess how to minimize the taxes on your retirement income by talking to us at (540) 720-5656.
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Amy Anderson joined the ILG Financial team in 2023 as the client relations coordinator. Her responsibilities include scheduling of appointments, annual check-up notifications, and annuity and required minimum distribution assistance. She is a graduate of Harding University with a degree in Computer Information Systems. Amy and her husband have two children and she enjoys reading, crocheting, music and spending time with her family.
Chase Lopez joined the ILG Financial team in 2020 as an advisor. Chase is a 2016 James Madison University graduate with a degree in management. Chase has been trained under the tutelage of Dave Lopez, who is not only the founder and managing member of ILG Financial, but also is Chase’s uncle and godfather. He also enjoys working alongside his cousin, Megan, who is Dave’s daughter. Chase, as a fiduciary, believes in putting his clients interests first, and building out plans for his clients where they can have a happy and fruitful retirement. He married his beautiful wife in February 2022 and both use most of their free time chasing around their little pup, Aurora.
Jessica Carson joined the ILG Financial team in 2018 as an agent. Jessica and her husband have four children, two dogs, 3 barn cats, 5 chickens, and three parakeets. She indeed loves her children and pets! When not at work, Jessica enjoys playing the piano and cello as well as traveling and spending time outside with her family, hiking, fishing, and boating.
Terri Center joined the ILG Financial team in 2019 as client services manager. She handles client records, application processing, and gathering information to provide a professional and friendly experience with all of our clients. Terri is a graduate of Oakland University. She is married and has two children. She enjoys hiking, family time, and puzzle challenging video games. She also likes to share her creativity in her canvas paintings and sewing projects.
Megan Jones joined the ILG Financial team in 2020 as marketing director. Megan and her husband live in Fredericksburg, VA with their German Short Haired Pointer, Gus. Megan is a graduate of Longwood University and holds a degree in communications. Megan is the oldest of Dave Lopez’s three children and not only enjoys working alongside her father, but also with her cousin, Chase, who joined the ILG Financial team in 2020 as an advisor. When not at work, Megan enjoys sitting on the back porch with family and friends enjoying food and music.