Once you’ve established your emergency fund, it’s time to continue to pay yourself first but for a sunny day in the future – your retirement. For most people (this includes you) the Roth IRA is going to be a great option to save money for retirement and have a tax-free source of income once they hit their golden years. The Roth IRA was named after its namesake, Senator William Roth of Delaware. The IRA part simply means Individual Retirement Arrangement. Roth IRAs work like this: You save money into your Roth IRA on an after-tax basis. What this means is that when you get paid from your job and you’ve already paid Uncle Sam his share in taxes – you get what’s left over. Of those leftovers (couldn’t help the food reference) you can take some of that money and put it into a Roth IRA. This money then goes […]
ira account
IRAs and Medicaid
When it comes to IRAs and Medicaid eligibility the question that gets asked is, “How does my IRA affect my eligibility for Medicaid?” Many states share similar guidelines when it comes to exempt and non-exempt assets in IRAs. Essentially, it boils down to this: if the IRA is not in payout status (the IRA owner is not taking required minimum distributions) then the assets in the IRA are included (non-exempt) in the determination of eligibility. However, if the IRA is in payout status and the owner is now taking required minimum distributions (RMDs) the total amount of the IRA is not included, but the annual income from the RMDs is.The same would be true regarding 401(k)s, 403(b), and other qualified plans that may require RMDs after age 70 ½. There are some states (Illinois for example) that treat IRAs, a 401(k), and pensions as exempt. Check your state’s laws to […]
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End of Year Roth Conversion Strategy: Fill Up the Bracket
Image by agrilifetoday via Flickr If you’re in a relatively low tax bracket and have funds in a traditional IRA or Qualified Retirement Plan, chances are you might be in a position to set yourself up with tax-free income via a Roth Conversion. One method that can work in your favor is the “fill up the bracket” technique, and if you want to do this for 2011, you’re running out of time, it must be done by December 30 (December 31 is a Saturday). The way this works is that you determine what your regular income is, and then look at where you are with regard to your tax bracket. If there’s still some “headroom” in the current bracket, you could convert an amount, equal to or less than your “headroom”, from your traditional IRA to a Roth IRA. This way you are controlling the tax rate at which your […]
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Real Estate Investing in Your IRA
From time to time this question comes up: why can’t I use my IRA account to purchase a retirement home? After all, for many folks, the IRA represents a pretty large account, possibly even enough to purchase a retirement home outright – so why not? No Personal Use This is a thorny question, because there are lots of restrictions around this sort of purchase with an IRA account. First of all, you need to understand that you cannot use the real estate personally, if it is owned by your IRA. Specifically, you, your spouse, heirs, and any other linear relatives can not use such a piece of real estate while your IRA owns it. That factor in itself should answer the question for a lot of folks. So, for example you could not – purchase a home in a sunny clime and use it for your own purposes two months […]
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And if you’ve come here to learn about queuing waterfowl, I apologize for the confusion. You may want to discuss your question with Lester, my loyal watchduck and self-proclaimed “advisor’s advisor”.