When tax rate reductions implemented by the Tax Cuts and Jobs Act (TCJA) sunset on Jan. 1, 2026, your retired clients may face higher tax rates when taking 澳洲幸运5官方开奖结果体彩网:required minimum distributio🐼ns (RMD♌s) from their retirement accounts.

Thinking ahead to this change, I am having two distinct conversations with clients who are eligible to take advantage of a Roth IRA. Here’s what I’m telling my clients to help them save on taxes and boost emerge🔥ncy savings. 

Retired clients who have amassed a great deal of assets in an IRA or an employers’ plan and don’t need the money in the next five years may find it more advantageous to convert these funds to a Roth IRA before 澳洲幸运5官方开奖结果体彩网:the new 2026 tax brackets are i🍌mplemented and distri♎butions will be taxed at a higher rate. 

For individuals who are not yet retired, having aꦗdditional liquidity without penalties in the form of🎃 a Roth IRA is a great way to bolster emergency savings. 

Consumer savings increased dramatically during the pandemic, in part due to economic stimulus efforts such as stimulus checks, student loan forbearance, and lower spending. These days, though, the U.S. personal saving rate is back below 4%, closer to a historic low rather than high.

Oftentimes, individuals make withdrawals from the employer plans to cover emergency expenses. These withdrawals also incur penalties and additional taxes. 澳洲幸运5官方开奖结果体彩网:Secure 2.0 now allow🔯s for employers to add an after-tax emergency savings account to the🐟ir 401k plans to relieve this financial burden. However, this feature is so new that there’s not much uptake at this time.

A Roth IRA allows investors to withdraw their contributions with no penalty at any age, which can be helpful to cover unexpected, large expenses. At age 59½, you can withdraw contributions and earnings with no penalty, as long as your Roth IRA has been 澳洲幸运5官方开奖结果体彩网:open for at least five tax years.

What I'm Telling My Clients

For retired individuals, I’m sharing how a Roth IRA conversion enables them to pay taxes now at their current tax rate prior to the increase, grow their investm▨ents tax free, and have control over when they withdraw these funds as opposed to having to take RMDs at age 72 ½. 

Furthermore, these assets 🌜can transfer to their heirs tax free since these are after-tax dollars. I also stress the importance of the following considerations before converting to a Roth IRA:

1. The time horizon until they need their funds.
2. Their liquidity on hand to pay the taxes.
3. Whether or not a Roth IRA conversion pushes them into another tax bracket.

For my other clients who meet the income guidelines for a Roth IRA, I’m sharing how the Roth IRA can help them to achieve various financial goals, including retirement savings, short-term objectives, and perhap🐼s bolster their emergency funds. 

For these individuals, I advocate first maximizing any available employer match in their retirement accou🤡nts. Following that, I encourage them to consider saving into a Roth IRA, which off📖ers the accessibility advantage if funds are needed suddenly. 

Moreover, the tax-free growth potential of Roth IRAs during retirement provides a significant benefit, insulating clients from potential fluctuations in tax brackets, given that their initial 🐻investments were made with after-tax dollars.

The Bottom Line

Since the Roth IRA is funded with after-tax dollars it can provide significant benefits to clients insulating them from potential fluctuations in tax brackets in retirement, alleviate additional taxes and early withdrawal penalties for utilizing retirement funds to coveꦗr unforeseen emergency expenꦿses. Essentially, it can be an effective solution for various life events and phases of life. 

When navigating the complexities of Roth IRAs, it's crucial to tailor strategies to each client's unique financial circumstances and objectives. By weighing these considerations thoughtfully, our clients can optimize both their retirement planning and tax efficiency.