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Created: March 18, 2021
Modified: October 11, 2023

A Tax-Free Roth IRA Can Help You Keep More of Your Retirement Income

April 15 is right around the corner, and if you haven’t made your IRA contribution for the 2020 tax year, it’s time to write that check. If your go-to account has always been a traditional IRA, give some thought this spring to a Roth IRA.

Roth IRAs

A Roth IRA account provides significant tax advantages, namely, tax-free growth potential, tax-free withdrawals, and no required minimum distributions. These benefits can be a big plus in retirement when it comes time to take out money and manage the resulting tax liability. Today, many retirees find themselves in a surprisingly high tax bracket because they’ve saved for years in tax-deferred retirement plans. Disciplined savers who’ve contributed to 401(k) or 403(b) plans for decades can easily lose 20%–30% or more of their retirement income to taxes.

It’s not mandatory to pay high taxes as you age, especially since tax-efficient retirement income strategies are available. At Johnson Brunetti, we often recommend clients reduce their reliance on tax-deferred accounts and increase their tax-free and taxable savings. Our suggested tactics include making annual contributions to a Roth IRA or converting an existing tax-deferred account such as an IRA or 401(k) to a Roth IRA.

Some people won’t consider a Roth IRA because the plan doesn’t provide an immediate tax deduction; however, that deduction may pale in comparison to a Roth’s future tax benefits. The only way to know for sure is by crunching the numbers.

As financial advisors, we’re experienced number crunchers. We also build tax-smart retirement income strategies. And we’re here to tailor retirement savings and income plans to your personal needs.

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