Tax Free Wealth

When it comes to maximizing tax-free wealth, Roth IRAs are a very valuable tool. And you want to try and start as young as possible. And we can’t stress that enough, starting to save when you’re young is going to be vital. And I’m not sure how many 16 years old are tuning in right now watching this, but maybe you have a child or a grandchild that you may consider helping. And the IRS in order to contribute into a Roth IRA requires you to have earned income. So there has to be wages, salary, tips etc. And so as an example, let’s imagine that you’re 16 years old and had $2500 of income for the year. Well 100% of that could be contributed into a Roth IRA. For 2002, the maximum that you could contribute into a Roth IRA was $6K for a younger individual. And so for a minor, states will typically require that a parent or a guardian is sort of the co-signer or the co-listed on that account until they’re legal age. And so we have an example of a client who when their child was young, they started basically matching whatever that child was earning and contributing that into a Roth IRA. So early on instead of giving them a cash gift, they were helping to contribute that into a Roth IRA. And so even during their early working years they were helping them along in building this Roth IRA. And so now this Roth IRA is built tax-free and built to a sizeable amount when he’s still in his 30s at this point. So during your early years of earning, it may also be a favorable time to be contributing to the Roth IRA because you’re in a lower tax bracket. So you’re not getting as big of a tax deduction for contributing into say a traditional IRA where you would get that tax break. So let’s say for example you’re in a 12% tax bracket now, but then in your higher earning years you bump into a 22% or higher bracket. That’s where again you may want to be contributing while you’re in that lower bracket. Also Roth conversions may be a valuable way to look at if you have traditional IRA funds and making that transition from a taxable account over to a tax-free account. What about if you’re in retirement and you’re in the 12% tax bracket, but if you’re questioning maybe tax rates will be going up. Or what if you’re considering well what if my spouse passes away? Now what tax implications am I going to have on these retirement accounts? So all these play different factors into an overall retirement plan and we feel that tax planning is a vital piece. So if you have questions, please reach out. We’d love the opportunity to sit down and talk further with you.