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Murray: Loophole opens back door to Roth IRAs By: Stacy Murray Guest Columnist April 28, 2021
Stacy Murray
With President Biden and Congress looking at a federal tax increase in 2021, this may be the time to consider converting savings from a traditional IRA into a Roth account for tax-friendly features that benefit retirees and their families.
Roth IRAs were created by Congress as part of the Taxpayer Relief Act of 1997, allowing people to deposit after-tax income into retirement accounts. In return for paying taxes up-front, savers see fewer restrictions and there are no taxes on growth or withdrawals.
But Roth accounts were not created for everyone. Income limits have prohibited high-earning retirement savers from opening Roth accounts, but there is a loophole in the tax code that allows higher earners to benefit from the retirement savings option.
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March 11, 2021 6:20 AM newsfeedback@fool.com (Ryan Downie)
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March 13, 2021 4:36 AM
401(k) accounts are a great tool for savers who want to supplement Social Security income in retirement. It’s a great idea to take advantage of the employer matches and automated savings provided by this account. However, you might want to consider a more balanced approach if you’re contributing above and beyond the employer match.
Everyone’s situation is different, but there are definitely some situations where the 401(k) isn’t the only place you should be parking your retirement savings.
1. Taxes in retirement
People love the idea of avoiding taxation today, and that’s one of the qualities that make 401(k) accounts so attractive. Qualifying contributions are made and grow on a tax-deferred basis. That’s great, but you have an embedded liability that grows over time. Withdrawals will be taxed as ordinary income in retirement.
3 Drawbacks of Using Only a 401(k) for Retirement fool.com - get the latest breaking news, showbiz & celebrity photos, sport news & rumours, viral videos and top stories from fool.com Daily Mail and Mail on Sunday newspapers.