Business Development Officer, T.D. McNeil Insurance Services, Fresno, California
The Roth IRA provides an ideal solution to many people’s retirement planning needs. Contributions are made with after tax dollars but taxation on the earnings is deferred and then forgiven upon reaching the age of 50 and a half. The plan must have been in effect for five years. These tax free dollars give the retiree tremendous leverage and flexibility. The Roth IRA is an essential part of many people’s plans.
There are income restrictions that disqualify individuals and married couples filing jointly from establishing a retirement program using a Roth IRA. There is a phased out eligibility for Singles or heads of households earning between $60-70,000 annually or married couples filing jointly of $96,000-116,000. and there are other restrictions.
If a person is facing these restrictions and cannot contribute to a Roth IRA there are several steps that can be taken. The first is to contact the plan administrator at their place of employment. It is a fairly simple matter to add a Roth option to existing 401(k) and 403(b) plans.
These Roth 401(k) and 403(b) plans have all the benefit of a Roth IRA and the limits for participation are much higher making them ideal, particularly for highly compensated employees. The key is to determine if the person’s future income tax rate will exceed the rate that is currently being charged. Many are surprised to find that when they stop paying on a mortgage and other deductible expenses that their income in retirement can be in a higher tax bracket than their current bracket.
If there is not an option for a Roth 401(k) or 403(b) plan an alternative would be permanent life insurance. It is taxed in a similar way to the Roth IRA. The deposits are made with after tax dollars and the distribution can be free of income tax with some careful planning. The life insurance has the additional benefit of being self-completing should death interrupt the accumulation phase.
Permanent life insurance comes in several styles which will match the investment options normally available to those who are interested in a Roth IRA. For the more conservative there is the totally guaranteed funding available in whole life insurance. The insurance company assumes all of the risk and steady growth is guaranteed.
For the more adventuresome there are life policies in which the cash value is invested in a separate fund. This is normally administered by the insurance company but may have a better yield that the funds held in the company’s general fund.
There is another form where the detached cash value earns interest based upon one of several popular market indexes. These indexed universal life policies allow you to experience some of the gains of the market while often limiting the downside of the market.
For those who want to experience the fluctuations and opportunities of the market there are variable life policies where the cash value is fully invested at the discretion of the policyholder. These policies have greater risk and potential rewards.
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There are income restrictions that disqualify individuals and married couples filing jointly from establishing a retirement program using a Roth IRA. There is a phased out eligibility for Singles or heads of households earning between $60-70,000 annually or married couples filing jointly of $96,000-116,000. and there are other restrictions.
If a person is facing these restrictions and cannot contribute to a Roth IRA there are several steps that can be taken. The first is to contact the plan administrator at their place of employment. It is a fairly simple matter to add a Roth option to existing 401(k) and 403(b) plans.
These Roth 401(k) and 403(b) plans have all the benefit of a Roth IRA and the limits for participation are much higher making them ideal, particularly for highly compensated employees. The key is to determine if the person’s future income tax rate will exceed the rate that is currently being charged. Many are surprised to find that when they stop paying on a mortgage and other deductible expenses that their income in retirement can be in a higher tax bracket than their current bracket.
If there is not an option for a Roth 401(k) or 403(b) plan an alternative would be permanent life insurance. It is taxed in a similar way to the Roth IRA. The deposits are made with after tax dollars and the distribution can be free of income tax with some careful planning. The life insurance has the additional benefit of being self-completing should death interrupt the accumulation phase.
Permanent life insurance comes in several styles which will match the investment options normally available to those who are interested in a Roth IRA. For the more conservative there is the totally guaranteed funding available in whole life insurance. The insurance company assumes all of the risk and steady growth is guaranteed.
For the more adventuresome there are life policies in which the cash value is invested in a separate fund. This is normally administered by the insurance company but may have a better yield that the funds held in the company’s general fund.
There is another form where the detached cash value earns interest based upon one of several popular market indexes. These indexed universal life policies allow you to experience some of the gains of the market while often limiting the downside of the market.
For those who want to experience the fluctuations and opportunities of the market there are variable life policies where the cash value is fully invested at the discretion of the policyholder. These policies have greater risk and potential rewards.