Roth IRA's Rock! An Interview With Johanna Turner, CFP

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Traditional IRA or Roth IRA? 401k or Roth 401k? With so many taxable retirement accounts out there, how do you know which one is best for you?

Johanna Fox-Turner, a fee-only financial advisor with 35 years of experience, joins the Wealth Summit to tell us how valuable a Roth IRA can be to our retirement portfolio.

KEY POINTS
-Traditional vs. Roth IRA
-How can I fund my Roth?
-How to set up a Roth

Depending on your income level, you might have the opportunity to deduct a traditional IRA on your tax form. However, the money does not grow tax-free, meaning when you take the money out all of the growth and income is taxable.

A Roth IRA, on the other hand, grows tax-free throughout the entire lifespan of the account. Unlike the traditional IRA, you don’t get a deduction for contributing money to the account. Choose an account by deciding whether you want the tax break up front or later on in life.

Many people say you should only fund a Roth if you’re in a low income tax bracket, but Johanna believes the extra bucket of tax-free income later in life is valuable to everyone.

She also recommends placing more aggressive securities in the Roth account in order to take advantage of the higher returns over time.

As retirees get older, they often get less interested in taking money out of their retirement accounts, electing instead to pass certain accounts on to the next generation. However, in a traditional IRA, you’re forced to take Required Minimum Distributions (RMDs) at the age of 70 1/2, which include tax payments.

Roth IRAs, in contrast, do not have RMDs, allowing the money to be passed on to your heirs. While the maximum individual contribution to a Roth is $5,500, you have the option to convert your traditional IRA into a Roth, which has no amount limitations. It is best to do these conversions in either a low income year or a bear market. The down economy will allow you to convert the money at bargain prices.

Johanna suggests setting a Roth IRA up through a financial advisor, but it is pretty easy to set up on your own as well through an online custodian or broker. E-Trade, Fidelity, and Schwab all have solid funds, but ultimately Johanna advises picking the account with the lowest fees.

Anyone can benefit from a Roth IRA, regardless of the tax bracket. If you want to contribute more than the limits allow, consider a conversion, which will also enable you to escape RMDs.

Finally, start early. The more time your account has to take advantage of compound interest the more money you’ll have at your disposal during retirement.
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