ROTH IRA's

“To Roth or Not to Roth – that is the question! The Taxpayers Relief Act of 1997 - all 800+ pages of it - contained a new provision allowing investors to make non-tax deductible contributions to a Roth IRA. For some, this can represent a powerful new tool to add to your retirement planning toolbox.”

Mark R. Fielder
President, FFM, LTD.

The Roth IRA got its name from 'William V. Roth, Jr.' who - in 1997 - was the Chairman of the Senate Finance Committee. Mr. Roth will undoubtedly go down in history as championing one of the better tax-sensitive saving vehicles of our modern era.

All contributions made to Roth IRA’s accumulate tax free and may never be subject to federal income taxation upon distribution as long as the account has been open for at least five (5) years or you are past age 59 ˝. Please note that distributions are federally tax-free and not necessarily state tax-free.

You may withdrawal your contributions (principal) made to a Roth IRA without restrictions or penalties at any time – unless your Roth IRA was established by converting from a traditional IRA plan.

If you own a traditional IRA, it may make economic sense for you to convert to a Roth IRA, but a great deal of thought and analysis should go into it beforehand. Several assumptions will have to be made including tax bracket, other sources of potential income, loss of purchasing power due to taxation on conversion, etc., etc.

However, one item is fairly certain in that conventional wisdom tells us that under most circumstances, it will probably make more sense to begin contributing to a Roth IRA than it will be a Traditional IRA.

If you would like to explore the option on converting existing IRA accounts to a Roth IRA, call us at 1-800-480-7526. We have conversion software that will analyze whether or not this will make sense for you.

The maximum annual contributions is $5,000 for individuals under age 50 and $6,000 for those 50 and above. There are, however, income restrictions that could limit your participation amounts. They are as follows:

If you are covered by a retirement plan at work and do not exceed federally mandated AGI restrictions you are still eligible to make contributions.

Unlike traditional IRA’s and other tax qualified pension plans, Roth IRA’s have no contribution cut off ages or mandatory distribution ages. Until recently, traditional IRA’s required that you make mandatory distributions at 70 ˝. Although that was recently repealed, you still could not make contributions. Under the Roth IRA you can still make post age 70 ˝ contributions;

The Roth IRA can also provide a source of monies for a qualified higher education expenses, qualified first home purchase, certain major medical expenses; certain long-term unemployment expenses, disability; or substantially equal periodic payments. There is a lifetime limit of of $10,000.

Estate advantages for the next generation are also availed to Roth IRA owners. Since no mandatory distributions are required at 70 ˝, they can continue to grow and eventually transfer federally income tax free to your children. Keep in mind that Roth IRA assets do not pass estate tax free.

Clearly, the Roth IRA favors the younger investor due to the effects of time and compounding. The Roth IRA has many of the same tax advantages afforded to investors who purchase non-mec Variable Universal Life Policies – without contribution limits and distribution limitations. Moreover, VUL policies can provide a death benefit value typically worth several times greater than the cash value.

Therefore, it could be argued that for younger investors, Variable Universal Life Policies might make better sense over the long haul. Again, weigh your options carefully.

Action To Take

Roth IRAs can be an attractive investment option, but like any other investment opportunity, you must carefully weigh the advantages and disadvantages.

If you would like to learn more about the Roth IRA and the various funding options available, please click HERE.

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Securities are offered through Girard Securities, Inc. member FINRA, SIPC.
Mark R. Fielder, Registered Principal. CA. Insurance Lic. # 0690576.

Disclosure: For more complete information about variable life, including charges and expenses, obtain a prospectus by calling 1-800-480-7526. Read it carefully before you invest or send money. Investment return and principal value of an investment will fluctuate. An investors units, when redeemed, may be worth more or less than their original investment. Consult your tax advisor.