Create an Income Stream
Taking initial withdrawals of 4% or considering annuities are often recommended to retirees.
Another way to save on your own for retirement is a Roth IRA. For 2015, the contribution limits are the same as for traditional IRAs—$5,500 for most workers and their spouses and $6,500 for those who are 50 or older by the end of the year. The contribution deadline (the April 15 tax-filing deadline) is also the same.
1. There’s no age 70 1⁄2 cutoff for Roth contributions.
As long as you have earnings from a job, you can shovel cash into your Roth.
2. Unlike a traditional IRA, there is no upfront tax deduction for a Roth IRA, either.
Instead, you make your contributions with after-tax money.
3. While a Roth IRA grows tax-deferred, just like a traditional IRA, the big advantage comes at the end: Withdrawals are tax-free in retirement.
That could be crucial if you think your tax rate may be higher in retirement.
4. Roth IRAs offer another advantage to retirees: There are no mandatory distribution rules.
That means you don’t have to tap your Roth IRA unless you want to.
5. Another major departure from the traditional IRA is particularly important to your heirs.
While funds withdrawn from an inherited traditional IRA are taxed, funds in a Roth go to heirs tax-free.
6. Roth IRAs are more flexible than traditional IRAs, too.
Because the contributions are funded with after-tax dollars, you can withdraw your contributions (but not earnings) anytime tax-free and penalty-free. Once your turn 591⁄2, you can even dip into earnings tax-free if the account has been open for at least five years.
Not everyone is eligible to contribute to a Roth IRA. To contribute the full $5,500 ($6,500 if you are 50 or older) in 2015, your income can’t exceed $116,000 if you’re single or $183,000 if you’re married filing jointly. You can make a partial contribution if you’re single and your income is between $116,000 and $131,000 ($183,000 and $193,000 if married filing jointly).
Thanks to a change in the rules that went into effect in 2010, anyone, regardless of income, can convert a traditional IRA to a Roth IRA. You must pay tax on the amount converted, but the switch means future earnings will be tax-free rather than simply tax-deferred.
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