In 1817, Benjamin Franklin stated, “In this world nothing can be said to be certain, except death and taxes.” It is true, we can’t avoid taxes and we can’t avoid death. But, there are investment options available for us to potentially reduce our tax liability. In this example, I am referring to any Roth investment type. It can apply to Roth IRAs, Roth 403(b)s and Roth 401(k)s.
With a Roth investment, you to pay the tax liability on the investment at the time of initial contribution. This is done by funding the Roth investment with already taxed dollars; i.e., from a savings account or checking account for IRA’s, or an after-tax deduction for employer-sponsored 403(b) or 401(k) plans. If a distribution is taken from a Roth account after age 59 ½, ordinary income taxes are not required. For an example of how this may impact you:
Let’s contrast this to a pre-tax investment (Traditional IRA, 403(b), 401(k)). With a pre-tax investment, you do not have a tax liability at the time of initial contribution. Your tax liability is deferred until you take a distribution.
If you would like to discuss this concept further, how it may fit into your overall investment portfolio and eligibility, please give me a call. I look forward to speaking with you!
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. Past investment performance is not a guarantee of future results. I am not a licensed CPA and cannot provide tax advice. Withdrawals from the account may be tax free, as long as they are considered qualified. Limitations and restrictions may apply. Withdrawals prior to age 59 ½, or prior to the account being opened for 5 years, whichever is later, may result in a 10% IRS penalty tax. Future tax laws can change at any time and may impact the benefits of Roth IRAs. Their tax treatment may change.