September 2020

September 2020

Roth IRAs have attracted retirement savers since their introduction in 1998. They offer the potential for tax-free retirement income, provided Internal Revenue Service rules are followed.

 

Do Roth IRAs seem even more attractive these days? Perhaps. You can cite two factors: current tax rates and the passage of the Setting Every Community Up for Retirement Enhancement (SECURE) Act.

 

Roth IRAs differ from traditional IRAs. Typically, distributions from traditional IRAs must start once you reach age 72, and the money distributed is taxed as ordinary income. When distributions are taken before age 59½, they may be subject to a 10% federal income tax penalty (although, the CARES Act does allow for some exceptions to those penalties for the 2020 tax year).

 

On the other hand, if you are the original owner of a Roth IRA, you do not have to start taking distributions at age 72. And if you are least 59½ years old and have owned the Roth IRA for at least five years, any distributions you take may be exempt from federal taxes.

 

Remember, this article is for informational purposes only. It does not replace real-life financial or tax advice. Be sure to consult a tax or financial professional before making any decisions regarding your traditional IRA or Roth IRA.

 

Converting a Traditional IRA to a Roth IRA is a taxable event. You pay ordinary income tax on the converted amount. And federal tax rates are now near historic lows, thanks to the Tax Cuts and Jobs Act, and they are scheduled to stay there through 2025.

 

The SECURE Act ruled that a non-spouse beneficiary of an IRA must completely withdraw that inherited IRA balance within 10 years rather than over the beneficiary’s lifetime (the previous guideline). The distribution can be taken as a lump sum or in payments over the 10 years. There is no set guideline other than it must be empty in 10 years.

 

The rules are similar for a non-spousal beneficiary of a Roth IRA. The new owner must deplete the inherited IRA in 10 years. However, there may not be any federal income taxes on the withdrawn amounts, assuming I.R.S. rules have been respected.

 

A Roth conversion may be appealing purely from an income tax perspective. Taxable incomes have declined for many households due to recent economic slowdown, resulting from the COVID-19 pandemic in 2020, and it might put some traditional IRA owners in lower tax brackets

this year. Add in the fact that federal income tax rates are low, to begin with, and 2020 could be a good time to go Roth.

 

A Roth conversion may also play a role in an estate strategy. If you inherit an IRA today, you don’t have to take annual Required Minimum Distributions (RMDs) from it in 2020, thanks to a provision in the SECURE Act. However, you have to make sure that IRA is empty within 10 years.

 

So, if you inherit a Roth IRA, you could give the assets in that Roth IRA a chance to grow and compound for another decade without tapping them. You could draw down the entire balance at once after 10 additional years of potential growth and compounding. Not so, in the case of a traditional IRA, however; that lump-sum withdrawal would be taxed as regular income.

 

Remember that any Roth IRA conversion is a taxable event, and these conversions cannot no longer be undone. Also, keep in mind that tax rules change from year to year, and future tax changes may affect IRAs.

 

There is no guarantee that the tax treatment of Roth and traditional IRAs will remain the same in the future.

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note - investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Financial Tips &

         Lifestyle Trends

 

Why Roth IRA Conversions May Now Be Advantageous

Thanks to a couple of factors, some investors are thinking about this move before 2020 ends.

 

 

Will Political Changes Affect the Economy?

With all of the storm and stress of the year 2020, you’d be forgiven if you momentarily forgot that we’re due for another national election in November. Many states will be selecting governors, representatives, and senators, while the country itself will be voting in the presidential election.

Even though these elections happen every four years, they often breed uncertainty or anxiety about the financial markets and other investment matters. Some of our personal political beliefs may be informed by our economic worldview. For that reason, it’s natural that presidential elections are seen as potential turning points for the economy.

It’s important to keep in mind that while the White House has enormous influence on economic policy, ambitious policies frequently find challenges in the legislative and judicial branches.

 

It’s also important to keep in mind that in the wake of COVID-19 there are other factors that can influence the financial markets.

Your financial professional helps you craft an investment strategy, one that may run through several presidents and many sessions of Congress. Naturally, you may have questions about how these policies might affect things in the short term, and they look forward to a chance to discuss them with their clients.

 

Tips

Golf Tip

Tee Shots 101

Short par-3s generally don’t intimidate most golfers unless there’s some sort of forced carry and/or a small green to contend with.

 

 

Hybrid clubs are wonderful! If you know how to use them correctly, hitting a hybrid in the place of a hard-to-hit long iron can be a real lifesaver, especially on a long and demanding par 3.

Source:https://www.golftipsmag.com/instruction/shotmaking/tee-shots-101

 

Health Tip

Hand hygiene is critical not only for health workers but for everyone. Clean hands can prevent the spread of infectious illnesses. You should handwash using soap and water when your hands are visibly soiled or handrub using an alcohol-based product.

Travel Tip

Accept the fact that something is going to go wrong. Your flight will be delayed, you might get lost, you might get sick…this is all part of traveling. Learning how to handle bumps in the road makes you a better traveler and sometimes these “bad moments” turn into your funniest travel memories later.

Did You Know?

 
  • rabbits like licorice

  • reindeer like bananas

  • the first letters of the months July through to November spell JASON

  • your foot has 26 bones in it

  • frogs can't swallow with their eyes open

  • women blink twice as much as men

 

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W.M. Durham Associates LLC is an independent financial services firm that creates retirement strategies using a variety of investment and insurance products.  Investing involves risk, including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. Any references to protection benefits or lifetime income generally refer to fixed insurance products, never securities or investment products. Insurance and annuity product guarantees are backed by the financial strength and claims-paying ability of the issuing insurance company.  WM Durham Associates LLC nor any of its employees provide legal, tax or accounting advice. You should consult your legal and/or tax advisors before making any financial decisions.

 

W.M. Durham Associates LLC is not affiliated with or endorsed by any government agency, including the Florida Retirement System (FRS).

All material should be regarded as general information.​​
 

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