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Liberty lesson learned.  Financial freemdom for your wealth is possible, but is the Roth IRA the vehicle for it?


 

My wife and I are now 65, approaching retirement and getting closer to that 70 1/2 age where we have to start taking mandatory distributions from our company sponsored 403b and 401k. 

A few years ago, I ran into a neighbor who was retiring, and faced the same decision. She started moving money from her 401k to a Roth IRA.  I was wandering, is that the right decision, and is there a better alternative? Is there any alternative at all? 

My wife and I were still working and in a higher tax bracket so I just left things the way they were.  Now I am revising this decision and found out there is a better alternative that will give me complete control of our money.

At my age I want my wealth to decide in Income and Estate tax free accounts. NO IF AND OR BUT OR CONDITIONS OR PERMISSION OR EXPAINATION OF USES FOR THE MONEY.  Contrary to popular opinion, the Roth IRA is not that place. 

 


The Roth IRA

Roth IRA's have been around since 1997.  They are a government sponsored savings plan with the benefits of tax free growth, from after tax dollars.  Sounds pretty simple.  The most common descriptions is "contributions are not tax deductible, but earnings can grow tax free."  Roth IRA have rules and conditions for withdraws and a 10% penalty rules may vary depending on your age.  What the heck.  I thought it was simply, after tax in, tax free out.

There are so many contingencies, for such a simple description, my head was spinning.  Here you go.  I am just talking about contribution:

 

 

Compensation and Contributions

Compensation defined as wages, salaries, tips, professional fees, commissions, self-employment income

Limit on how much you can save for your retirement, $6,000 per year.  Will that be enough, I doubt it

Limit on how much you can earn to qualify.  If you are too rich you can't use the Roth IRA for your tax free growth.

Single person when you make less than $122,000 you can contribute the full $6,000.  However when you earn over $122,000 that $6000 decreases, by $400 for every $1000 over the $122,000.    When you make over $137,000 you can no longer contribute.  A big fat $0.  

Married filing joint under $193,000 you are ok, you can sill contribute your $6,000 but it still decreases by $600 for every $1,000 you make over $193,000 till you hit $203,000 then you are at $0

But if you are over 50 years old the government  gives you a birthday gift.  Your maximum contribution increases to $7,000.

 

 

Roth IRA Contribution Limits (Tax Year 2019)1

 

 

 

 

Modified Adjusted Gross Income (MAGI)

 

 

Maximum Contributions for Individuals Under Age 50

Maximum Contributions for Individuals Age 50 and Older

Single Filers

Married Filing Jointly

Married Filing Separately

 

 

under $122,000

under $193,000

$0

$6,000

$7,000

$123,500

$194,000

$1,000

$5,400

$6,300

$125,000

$195,000

$2,000

$4,800

$5,600

$126,500

$196,000

$3,000

$4,200

$4,900

$128,000

$197,000

$4,000

$3,600

$4,200

$129,500

$198,000

$5,000

$3,000

$3,500

$131,000

$199,000

$6,000

$2,400

$2,800

$132,500

$200,000

$7,000

$1,800

$2,100

$134,000

$201,000

$8,000

$1,200

$1,400

$135,500

$202,000

$9,000

$600

$700

$137,000 & over

$203,000 & over

$10,000 & over

$0

$0

If you are looking for a place to put you money that avoids taxation, on money that has already been taxed, you are taking a step in the right direction to financial freedom and liberty.   However the Roth works only if you never need it before age 59 /12.  The Roth  makes some sense if you want to assume greater risk of the stock market, real estate or even private placements and achieve  returns greater than  income investments, like tax free bonds and life insurance.  


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