Retirement Q&A

Retirement Q&A

Let's dive in shall we? I asked what people's questions were in retirement and they did not disappoint! In order to keep with the flow of this week's article, I will keep everything strictly Question/ Answer format without any names for confidentiality.

You asked and I listened, so here we go!

Q:What is the difference between an IRA and a ROTH IRA

A: A traditional IRA and a Roth IRA both help you save for retirement, but they differ in how they are taxed. With a traditional IRA, you may get a tax deduction when you contribute, but you’ll pay taxes on withdrawals in retirement.

In contrast, a Roth IRA is funded with after-tax money, meaning you don’t get an upfront tax break, but your withdrawals in retirement—including earnings—are completely tax-free if certain conditions are met.

Another key difference is that traditional IRAs require you to start taking withdrawals (Required Minimum Distributions) at a certain age, while Roth IRAs have no such requirement during your lifetime.

Reference: IRS Retirement Topics- Types of Retirement Plans

Q: Are retirement benefits taxable?

A: Yes, retirement benefits can be taxable, but- it also depends on the type of account and how the contributions were made. Traditional 401(k) and 403(b) plans, as well as traditional IRAs, are taxed when you withdraw the money because contributions were made pre-tax.

On the other hand, Roth IRAs and Roth 403(b) plans allow tax-free withdrawals in retirement since contributions were made with after-tax dollars. Social Security benefits may also be taxable if your total income is above a certain level. This is why it's important to get with a financial advisor to determine what works best for you.

Reference: IRS Retirement Topics – Taxation of Retirement Income.

Need clarification or want to start your journey to financial freedom? Schedule today.

Q:Are retirement contributions tax deductible?

A: Yes, retirement contributions can be tax-deductible, depending on the type of account. Contributions to traditional IRAs, 401(k) plans, and 403(b) plans are typically tax-deductible, meaning they lower your taxable income for the year.

However, Roth IRA and Roth 403(b) contributions are not deductible since they are made with after-tax dollars. The amount you can deduct for a traditional IRA depends on your income and whether you or your spouse have a workplace retirement plan.

Reference: IRS Retirement Topics – IRA Deduction Limits.

Q: Can retirement accounts be put into trusts?

A: Yes, you can designate a trust as the beneficiary of your retirement accounts, such as IRAs or 401(k) plans. This approach puts you in control of how and when your beneficiaries receive the funds, which is useful if you're concerned about their financial habits or want to provide for minors.

It is important to note that naming a trust as a beneficiary can have significant tax implications and may affect the required minimum distributions. Therefore, it's essential to consult with a financial advisor (like myself), to ensure this strategy aligns with your overall financial goals

Reference: IRS Retirement Topics - Estates and Trusts

Need clarification or want to start your journey to financial freedom? Schedule today.

Q: What retirement accounts should I have?

A: This one is a tricky question! It really does just depend on your personal circumstances, employment status, and financial goals. If your employer offers a 401(k) or 403(b) plan, it's always a smart move to participate- especially if they match your contributions, as this is essentially free money.

Additionally, contributing to an Individual Retirement Account (IRA) can provide tax advantages and more investment options. Traditional IRAs offer tax-deferred growth, meaning you pay taxes upon withdrawal, while Roth IRAs involve after-tax contributions but allow for tax-free withdrawals in retirement. Self-employed individuals might consider SEP IRAs or SIMPLE IRAs, which have higher contribution limits and are tailored for small business owners. It's important to assess your current financial situation and retirement goals to determine the best mix of accounts for you.

Q: Why should I choose Financial Advantage Consults?

A: This might be my favorite question to answer - we are a consulting group that specializes in 403(b)'s, tax advisory, rollovers, IRAs, Roth IRAs, financial planning, Wills, and Trusts. We are backed by 50+ years of team expertise, helping clients secure their financial future in any and all forms.

It's our goal to help over 1 Million families find financial freedom here in the RGV.

Need clarification or want to start your journey to financial freedom? Schedule today.

Laura Munoz, Senior Advisor with Financial Advantage Consultants