Roth IRA - RBC Wealth Management

Roth IRA
Explore the Opportunity
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Now You Have Even More Flexibility
How You Invest for Your Future
in
Retirement — a time that you work for and dream
about for years. But, do you have a plan to provide
the income you will need during your retirement
years? Whether you are just beginning your career,
or retirement is just around the corner, the more
you save today, the better prepared you will be
tomorrow.
IRAs are easy, powerful tools to help you meet
your retirement savings goals. There are two
types of IRAs, traditional IRAs and Roth IRAs.
Traditional IRAs are generally funded with pre-tax
deposits, meaning you received a tax deduction.
Assets in traditional IRAs grow tax-deferred, and
distributions are subject to ordinary income tax. In
contrast, you make contributions to a Roth IRA after
you’ve paid income taxes. However, qualifying Roth
distributions are tax-free.
W hy C h o o s e
a
R o t h IRA?
Roth IRAs offer an opportunity for you to save for
retirement and ultimately withdraw both your
contributions and earnings tax-free. Additional
benefits of a Roth IRA include:
nNo required minimum distributions for you or
your spouse;
nRoth IRAs pass tax-free to your beneficiaries;
nBecause distributions are tax-free, a Roth IRA
allows you to protect your retirement savings
from the prospect of rising taxes and provides
you with greater tax management flexibility in
the future; and
nUnder current law, a tax-free distribution from
a Roth IRA will not impact the taxability of your
social security benefits.
RBC Wealth Management, a division of
RBC Capital Markets, LLC, Member NYSE/FINRA/SIPC.
Roth IRA 1
within five years of the conversion you may have a
pre-mature penalty tax on your basis unless you are
over 59½ or another exception applies.
A distribution is completely tax and penalty free
if it is a qualifying distribution. A distribution is
considered qualifying if your Roth IRA has been
open for at least five years and you are 59½ or
older, or in the event of disability or death, or for
a qualifying first time home purchase ($10,000
lifetime limit).
Is
a
R o t h IRA R i g h t
for
You?
There are many things to consider when deciding if
a Roth IRA is the smart choice for you. You may want
to consider a Roth if you will not be withdrawing the
With favorable tax benefits like these, Roth IRAs are
money for a while and believe that your tax rate will
an attractive way to save for retirement.
increase in the future. This could be because your
Funding
a
income will be higher or you believe that federal
R o t h IRA
A Roth IRA can be funded either by annual
contributions (eligibility requirements apply) or
by converting assets from a traditional IRA or an
employer-sponsored retirement plan, such as
income tax rates will increase. Having assets in
multiple types of accounts, such as traditional pre-tax
retirement accounts, Roth IRAs and taxable accounts
can provide you with future tax diversification.
a 401(k), to a Roth IRA. As of January 1, 2010 all
You may also want to convert to a Roth IRA if:
taxpayers are eligible to convert assets to a Roth
nYou want to take distributions from your IRA on
IRA, and have the opportunity to enjoy the potential
benefits of a Roth IRA.
T a x C o n s e q u e nc e s
nYour IRA or retirement account is made up in
of a
Roth Conversion
While the tax bill for all pre-tax amounts that are
converted is payable the year in which you convert,
the potential for tax-free growth may outweigh the
impact of paying income taxes on the amount at
the time of conversion.
D i s t r i b u t i o n s F r o m R o t h IRA s
Once you have paid your “tax bill” you can
withdraw the converted amount or annual
contribution (or basis) at any time. However, in
the case of conversion, if your distribution is made
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your terms, not because they are required.
part with assets that have already been taxed.
nFor estate planning purposes, you would like to
pay taxes now to reduce your taxable estate.
nYou do not want your heirs to pay taxes on
distributions when they inherit the assets or you
believe they will be exposed to higher tax rates
than you will experience at the time of conversion.
To get the greatest benefit from a conversion
you want to pay the conversion tax out of pocket
instead of dipping into your retirement account.
Roth IRA 3
Depleting your retirement account to pay taxes
could erode the advantages you might otherwise
gain through the Roth IRA.
Keep in mind, if you make a Roth conversion and
it turns out not to be advantageous, IRS rules allow
you to “undo” or re-characterize the conversion
(within certain time limits).
Considerations
While Roth IRAs offer many benefits, converting
to a Roth IRA may not be suitable for everyone,
especially if you expect your tax bracket to be lower
in retirement. Other reasons why you may not want
to convert to a Roth IRA include:
n
You do not have extra money to pay the taxes
and would have to use your IRA assets.
n
A conversion would push you into a higher
tax bracket.
n
You may need money from your Roth IRA
before it’s been open for five years.
Make
an
I nf o r m e d D e c i s i o n
With so many details to consider, the good news
is that we can assist you and your tax advisor in
reviewing your circumstances and help you decide
if a Roth IRA is appropriate for your immediate
needs and long-term goals.
Should you determine that a Roth IRA is a smart
choice for you, we will work together to create a
plan that will help you build and preserve your
assets and achieve your retirement goals.
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Roth IRA 5
RBC Wealth Management is not a Tax Advisor. All decisions
regarding the tax implications of your investments should be
made in connection with your independent tax advisor.
21213 (09/11)
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