AXA Advisors of Ohio

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Address:

Cleveland
1001 Lakeside Avenue, Suite 1650
Cleveland, Ohio 44114

Akron
3700 Embassy Parkway, Suite 330
Akron, Ohio 44333

Columbus
7965 North High Street, Suite 140
Columbus, Ohio 43235
OH

Phone:

216.621.7715

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Consider a Roth for Tax-Free Retirement Income

Contributing to a traditional IRA or an employer-sponsored retirement plan may offer a current-year tax benefit by reducing taxable income. However, distributions — including any earnings — are taxed as ordinary income.

By contrast, contributions to a Roth IRA or a designated Roth account in an employer retirement plan do not reduce current income, but qualified withdrawals — including any earnings — are generally free of federal income tax as long as they meet certain conditions. Moreover, contributions to a Roth IRA (but not earnings) can be withdrawn tax-free and penalty-free at any time, for any reason.

Repositioning Your Savings

If you have a traditional IRA but prefer the advantages of a Roth, you can open a Roth IRA and make contributions to either or both accounts, subject to the combined annual contribution limit.

You could also convert all or part of your traditional IRA assets to a Roth IRA. Contributions to an employer's retirement plan can be converted to a designated Roth account if in-plan conversions are allowed.

Conversions of assets to a Roth account are subject to federal income tax in the year of conversion. Under current tax law and if all conditions are met, the Roth account will incur no further income tax liability for the rest of your lifetime, or for the lifetimes of your designated beneficiaries, regardless of any account growth.

The prospect of a substantial tax bill can be daunting, but paying taxes now may be a worthwhile tradeoff for potential tax-free earnings growth and tax-free income in retirement. And because you do not have to take required minimum distributions (RMDs) from a Roth IRA, you have more flexibility when taking withdrawals.

To make the tax liability of a Roth conversion more manageable, you could spread out smaller conversions over several years. As a result of the Tax Cuts and Jobs Act, you no longer can recharacterize or reverse a Roth IRA conversion. You also cannot recharacterize an in-plan conversion of assets in an employer-sponsored plan.

Contribution and Distribution Rules

Eligibility to contribute to a Roth IRA phases out at higher income levels. (Income limits also apply for tax-deductible contributions to a traditional IRA if you're an active participant in an employer plan.) IRA contributions for 2017 can be made up to the April 2018 tax filing deadline; however, employer-plan contributions and Roth IRA conversions for 2017 must be made by December 31.

To qualify for a tax-free and penalty-free withdrawal of earnings, distributions from a Roth IRA or a Roth employer plan account must meet a five-year holding requirement and take place after age 59½ (with some exceptions). The earnings portion of a nonqualified distribution is subject to ordinary income tax and a 10% tax penalty, unless an exception applies.

Assets converted to a Roth IRA can be withdrawn tax-free at any time, but amounts taxed at the time of conversion must meet a five-year holding period for each conversion; if not, withdrawals may be subject to a 10% penalty unless you're age 59½ or another exception applies.

RMDs from traditional IRAs and employer-sponsored retirement plans (including Roth accounts) must start in the year you turn 70½. Beneficiaries of all IRAs and employer plans generally must start taking RMDs in the year after the original account owner's death.

It may be wise to consult a tax professional regarding Roth conversions, recharacterizations, and distributions.

 

Information provided has been prepared from Broadridge Advisor Solutions sources and data we believe to be accurate, but we make no representation as to its accuracy or completeness. Data and information is provided for informational purposes only, and is not intended for solicitation or trading purposes. Broadridge Advisor Solutions is not an affiliate of AXA Advisors, LLC. Please consult your tax and legal advisors regarding your individual situation. Neither AXA Advisors nor any of the data provided by AXA Advisors or its content providers, such as Broadridge Advisor Solutions, shall be liable for any errors or delays in the content, or for the actions taken in reliance therein. By accessing the AXA Advisors website, a user agrees to abide by the terms and conditions of the site including not redistributing the information found therein.

Securities offered through AXA Advisors, LLC (NY, NY 212-314-4600), member FINRA, SIPC. Annuity and insurance products offered through AXA Network, LLC and its subsidiaries.

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