By Gerald Robinson, CFP®
At LightForce Financial, our services are designed to craft a customized plan that both accounts for the cost of taxation in future years, and also optimizes your available sources of income.
The advantages of the Roth IRA perfectly exemplify our mission. In this article, I discuss the details about why I prefer Roth IRAs to help meet future financial goals.
Traditional IRA vs. Roth IRA Basics
The difference between a Roth IRA and a traditional IRA can be boiled down to taxes.
- Traditional IRA: Typically, your contributions are tax-deductible in the year you make them, which lowers your taxable income. Retirement withdrawals, however, are subject to regular income tax.
- Roth IRA: Your contributions are made with after-tax dollars, meaning you can’t take a tax deduction for the year you contribute. However, when you withdraw money during retirement, you don’t have to pay taxes.
A general rule of thumb when deciding between the two is if you think your tax bracket and rates could be higher when you retire, go with a Roth IRA so you can lock in your current tax rate as the only one you pay.
Available Funds
All contributions made to a Roth IRA are tax-free. So after a few years of contributing money to your account, you basically have a pseudo emergency fund. Theoretically, if life throws an emergency situation your way, you could withdraw funds from your Roth IRA tax- and penalty-free.
However, remember that your financial planning goal should be to grow your Roth IRA to a sizable tax-free pool of funds for your retirement. But knowing you have the option of accessing these funds for an emergency can be comforting for young investors.
Required Minimum Distributions
Roth IRAs do not have any required minimum distributions (RMDs) at any age. This is a significant advantage over traditional IRAs that do require you to take annual RMDs by April 1 of the year following the year you turn 73 (it was previously 72, but that rule changed in 2023).
More Post-Retirement Money
Another advantage over traditional IRAs is that with a Roth IRA, since you’re not taxed for withdrawing money during retirement, you get the benefit of only having to withdraw the amount you need. You don’t need to withdraw an additional amount to cover the income taxes you’ll have to pay. That means you can keep more of your hard-earned money for enjoying your golden years.
Backdoor Access
Put simply, a backdoor Roth IRA allows you to get the tax benefits of a Roth IRA even if your income prevents your eligibility. Be sure to check with your tax professional to confirm this is a smart strategy for your financial situation.
Roth Conversions
If you have a large portion of your retirement nest egg in traditional sources such as IRAs or 401(k)s, you can work with your financial planner to reduce the lack of flexibility that these sources offer. Conversions, when done on a timely basis, can greatly enhance your available retirement nest egg.
Enhanced Compounding
Your annual contributions to a Roth IRA or your Roth conversions can compound dramatically over the years, giving you an even more valuable tax break. This should be a major consideration during your retirement, which could last over 30 years.
With a Roth IRA, you do not have to pay income tax as you go, thereby keeping your next egg growing faster than it would have with traditional IRA payments or deductions.
Bottom Line
A large percentage of my clients take advantage of the wonderful benefits of Roth IRAs. These clients make the Roth IRA their most aggressive investment account.
My firm believes that Roth IRAs are the smartest option for building your retirement nest egg. I consistently witness the advantages that the compounded growth, tax-free growth and withdrawals, no RMDs, and flexible contribution provide for my clients who are in the retirement phase of their life.
I personally have helped my children and grandchildren start their individual Roth IRAs as they prepare their own road to retirement.
Are Roth IRAs Right for You?
The smartest way to discover if you can benefit from the advantages of a Roth IRA is to consult a professional financial advisor.
At LightForce Financial, our mission is to deliver outstanding financial planning and investment management services. In short, whether you’re building up or spending down your assets, we help you plan your financial life with personalized services.
To schedule an introductory meeting, call (817) 896-2744, email gerald@lightforcefinancial.com, or select an appointment online.
About Gerald
Gerald Robinson is Founder of LightForce Financial, a fee-only financial services firm based in Denton County, Texas, specializing in guiding multi-generational families and small and mid-sized business owners through the inevitable—change. Gerald and his firm provide one-on-one service and a long-term approach to goal achievement. He’s fulfilled by developing long-term relationships with clients as he helps align their wealth and values through a personalized financial plan.
After graduating with a BBA with a focus on finance and statistics from UNT, while serving in the United States Marine Corp Reserve, Gerald began a long career in mid-management of a large retail food chain. In 1999, with the desire to serve clients by building a business that would be of value and positively impact their lives, he returned to his roots and began his journey as a financial professional. In 2009, Gerald acquired his CERTIFIED FINANCIAL PLANNER™ designation, and now serves clients as an independent CFP® professional on a fee-only basis—no commissions. For over 30 years, Gerald has lived in Flower Mound with his wife; he also has three children and five grandchildren. In his spare time, he enjoys staying involved in his community, serving on various commissions and boards. To learn more about Gerald, connect with him on LinkedIn.
This presentation is not an offer or a solicitation to buy or sell securities. The information
contained in this presentation has been compiled from third-party sources and is believed to be reliable; however, its accuracy is not guaranteed and should not be relied upon in any way whatsoever. This presentation may not be construed as investment, tax or legal advice and does not give investment recommendations. Any opinion included in this report constitutes our judgment as of the date of this report and is subject to change without notice. Additional information, including management fees and expenses, is provided on our Form ADV Part 2 available upon request or at the SEC’s Investment Adviser Public Disclosure website.
Past performance is not a guarantee of future results. Diversification and asset allocation do not ensure a profit or guarantee against loss. Registration with the SEC does not imply a certain level of skill or training.