Anyone can invest in a Roth2010 brought this welcome change in legislation If

Anyone can invest in a roth2010 brought this welcome

This preview shows page 10 - 13 out of 48 pages.

Anyone can invest in a Roth—2010 brought this welcome change in legislation If you meet the income limits (as de- scribed in the next section), you can invest directly in a Roth If your income exceeds the limits, I will explain how you can still benefit from having a Roth Income Limits for Direct Investment in a Roth IRA In 2013, if you are single and your modified adjusted gross income (MAGI) is under $112,000, or if you are married and your joint income is below $178,000, you can invest directly in a Roth IRA up to the full annual limit (For most of us, our MAGI is the same as our standard adjusted gross income [AGI] on our federal tax return So what’s AGI? It’s all the money you made in a year—your income and earnings on taxable investments—minus certain deductions ) Reduced contribu- tions to a Roth IRA are allowed for individuals with MAGI be- tween $112,000 and $127,000 and married couples with joint MAGI between $178,000 and $188,000 Those limits are ad- justed annually for inflation The firm where you open an IRA account will always have up-to-date information about the current income rules
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Retirement Planning 82 Maybe you’re not anywhere near bumping up against those income limits right now, but I still want you to know your options if at some point during your successful career your MAGI is too high to qualify for a direct investment in a Roth IRA Wouldn’t that be a great “problem”? If your income is too high for a direct investment in a Roth IRA, you can make a contribution to what is known as a non- deductible traditional IRA Fairly simple paper work is required to then convert that account to a Roth IRA If this is the only IRA account you have and you make the conversion imme- diately, you will likely owe no tax However, if you have old traditional IRAs, you may owe tax at the time you convert I recommend you work with a trusted tax advisor if you have other IRA assets and you are considering a conversion, be- cause the tax rules can be complicated Your tax advisor can also show you how converting smaller sums over the years can be a smart option How Much You Need to Save for Retirement The reality is that you must find a way to save as much as possible today for your retirement, no matter how many years away it may be Finding ways to reduce your expenses today will have a double payoff for you: First, you will free up money that can be redirected into retirement savings; second, you will have trained yourself to live on less, so you will need less money in retirement to support your (less expensive) lifestyle Now that brings us to the two questions I am asked all the time: How much do I need to save for retirement? Which retirement account is best for me? The Retirement Formula The more you save today, the better If you ask me, there is no such thing as putting away too much money Ideally, I would
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Retirement Planning 83 love for you to make it your goal to set aside 15% of your pretax salary each and every year, starting as early as possible If you
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