At REAP Financial, we’ve been helping families navigate retirement, including the benefits of Roth IRAs and Roth 401Ks. Oftentimes, pre and post-retirees feel like they’ve arrived late to the party, when they learn about all the benefits of these accounts. As you know, Roth IRAs and Roth 401Ks have enormous tax-free benefits. However, a lot of people don’t want to contribute to a Roth, since typically when you contribute to a Roth account you’re not getting a tax deduction. Today, we will walk you through a little known way to build up a large Roth IRA quickly.
How to Build Up Your Roth IRA Quickly
This starts with an employer 401K, which you’ve likely been contributing to for many years. Under today’s laws, if you’re over 50, you can max out that account at $30,500, including a catch-up limit. If you’re meeting that amount, you’re doing a great job! However, you may have the opportunity to do more.
As you’re getting closer to retirement, you may have more income to put towards your savings to stockpile for retirement, with the kids off payroll and similar commitments lessened. These would be after-tax contributions. You should check with your HR department or employer to see if they offer after-tax contributions, as many do. After-tax contributions means you can max out your traditional 401K or your Roth 401 and then you can put additional dollars in above and beyond that $30,500 limit. Under today’s law, the maximum you can put in a traditional or Roth 401 is extremely high, up to $69,000.
For example, let’s imagine you’re over 50 and contributing to your traditional work 401K to the tune of $30,500. You’re getting a tax deduction on that contribution. Then, you can choose to put an additional $38,500 into the account. That amount will still show up as income and be counted for tax purposes. You may question why you would contribute above the limit if it is not tax-deductible. Those after-tax contributions can be rolled into a Roth IRA in your retirement, in what we like to call a mega Roth conversion. This allows you to frontload your Roth IRAs upon retirement. Any money that you’ve put in a Roth 401K can also be rolled into a Roth IRA at this point without taxes. This means, if you’ve been contributing to your Roth 401K and doing the after-tax contributions, you can head into retirement with a significant amount of tax-free wealth at your disposal. Plus, it will continue to grow tax-free, and it can be left to your heirs tax-free! If you draw on it, this amount will never contribute to your income figure, and there are no required minimum distributions, so you’re completely in control of your Roth dollars.
After-Tax Contributions: Your Roth Superpower
As you can see, the Roth IRA is an incredibly powerful account, which is often under-utilized. The strategy we’ve outlined can really help you get a jump start on your Roth IRA. To get started, check with your employer and see if they offer after-tax contributions. If you have this option, we encourage you to consider your savings plan and your tax-free retirement income.
If you’re looking for more retirement tips and tricks, head to www.reapfinancial.com! There you can download our 10 Retirement Tips guides right off the home page! Once you have it downloaded, you can use these helpful tricks to help you take advantage of the Roth game and a lot more. It’s a must-have to maximize your retirement!
Austin, Texas Financial and Retirement Planning Services
If you’re in the Austin, Texas area, our team at Reap Financial would love to meet with you to discuss your financial and retirement plans. We’re dedicated to providing tailored financial and retirement planning services to help you achieve your long-term financial goals. Our expertise includes navigating the complexities of Roth IRAs, Roth 401Ks, and other retirement accounts to ensure that you’re making the most of your savings.
Our approach is centered around understanding your unique financial situation and retirement aspirations. We believe in creating personalized strategies that align with your goals, whether you’re just starting to plan for retirement or are looking for ways to optimize your existing retirement accounts.
Whether you’re looking to have someone review and existing portfolio of you looking to implement a new, personalized retirement plan, you can schedule a call with one of our advisors today.
Main Office Address:
REAP Financial
9414 Anderson Mill Rd #100
Austin, TX 78729
Phone: 512.249.7300
