Investment Planning West Hartford, CT | IRA Distribution Planning

Burr Capital Advisors

At Burr Capital Advisors, we specialize in financial planning for every stage of life. We approach financial planning from a foundation built on lasting relationships with our clients. It is important to us that our clients understand exactly what it means to take the next step towards their unique financial future, which is why we take pride in client education. We found that there is immense value in investing in our clients’ understanding of their portfolios. For 401(k) and investment planning in West Hartford, CT, look no farther than Burr Capital Advisors. Burr Capital has been voted the third best financial firm in West Hartford, with Whitney Burr voted as the Best Financial Advisor. We help you make informed financial decisions every step of the way, bringing you closer and closer to your version of financial freedom.

Traditional IRA

A traditional Individual Retirement Account (IRA) allows individuals to make pre-tax contributions to a retirement account with investment features. Funds in a traditional IRA grow tax-deferred until qualified withdrawals are made in retirement. In a traditional IRA, withdrawals are taxed at the owner’s income tax rate at that time. No capital gains or dividend income taxes are taken from these contributions until withdrawals are made. In a traditional IRA, taxpayers can contribute 100% of their wages up to a specified amount. Depending on the individual’s income, contributions can be tax-deductible. Traditional IRAs do have limits, rules, and required minimum distributions (RMDs).

Roth IRA

A Roth IRA is an individual retirement account (IRA) that allows individuals to make qualified withdrawals tax-free upon retirement so long as specific qualifications are met. Roth IRAs are similar to traditional IRAs in that they are both tax-advantaged ways of saving for retirement. The specifics such as rules and limits are different, but the most significant difference between a Roth IRA and a traditional IRA is how and when the funds are taxed. Roth IRAs are funded with after-tax dollars, and contributions made to the Roth IRA are not tax-deductible. When you receive qualified distributions from a Roth IRA, the money is tax-free at that point because taxes have already been paid.

Traditional vs. Roth IRA

Roth IRAs are funded with after-tax dollars. Contributions made to a Roth IRA are not tax-deductible. When qualified withdrawals begin, the funds are then tax-free. Traditional IRA deposits are made with pre-tax dollars. Taxes are paid upon withdrawal at retirement. Traditional IRAs are similar to personal pensions in that there are considerable tax breaks, but there are restrictions on the accessibility of funds. Roth IRAs are more like regular investment accounts, except they have added tax benefits. There are fewer restrictions but fewer tax breaks. A Roth IRA is usually best for individuals who expect to be in the same or lower tax bracket at retirement. A traditional IRA can work for someone who expects to be in a higher tax bracket at retirement. Both Roth and traditional IRAs can work for different retirement savings needs. Essentially, the differences between a Roth IRA and a traditional IRA boil down to whether you want to owe the IRS now or later. Accessibility of funds and eligibility standards differ as well. Speaking with your financial advisor about maximizing your retirement contributions and diversifying your investments is crucial in saving for retirement and mitigating tax liability.

Roth IRA Limits

Limits on contributions made to a Roth IRA have the potential to change on an annual basis. Each year, the Internal Revenue Service (IRS) evaluates and sometimes changes contribution limits for Roth IRAs and other retirement savings accounts. Only an individual’s earned income can be contributed to a Roth IRA. Your income earned also has the potential to limit your eligibility to contribute to a Roth IRA. After a taxpayer reaches fifty, Roth IRA limits become more flexible since the individual is nearing retirement age. At that time, catch-up contributions become allowed. Catch-up contributions to a Roth IRA are contributions made in excess of the normally allowed amount.

Roth IRA Rules

There are other Roth IRA rules. For example, so long as individuals have owned their Roth IRA for five years and are aged fifty-nine and a half or older, they can begin taking qualified withdrawals without taxation. Contributions made to a Roth IRA must stop after the age of seventy and a half. While an individual can have more than one Roth or traditional IRA, total contributions cannot exceed IRS limits.