Roth IRA calculator tools are needed to make a thorough lifetime financial plan

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Roth IRA and Roth 401k Accounts and Roth Estate Planning Strategies

There are trade-offs in deciding how to set the proportion to contribute into Roth retirement savings accounts versus making contributions to traditional retirement accounts with tax deferral advantages. Please use the links at the bottom of this article to read our previous articles on the subject of an optimal Roth retirement account contribution strategy.

In many senses for some people, an optimal Roth retirement account contribution strategy also becomes an estate planning question. In the majority of personal finance situations, making 100% of allowable Roth contributions may not yield the greatest total estate at age 80, 90, or 100, when compared to the opportunity to make currently tax deductible contributions traditional personal IRA and traditional 401k, 403b, KEOGH, and other retirement plan accounts that reduce current taxable income.

However, when you expand your total present value analysis to include the long-term value to a multi-generational family, then Roth assets can have significantly greater value. If Roth assets remain at death, there are very significant long-term multi-generational tax avoidance advantages. In such circumstances where it is likely that a person’s assets will be adequate to cover retirement expenses even with a very long life, then it can be advantageous to live off of traditional retirement plan assets, which are subject to mandatory withdrawals and associated income taxation in retirement anyway. This means that over ones lifespan, when retirement assets are adequate for the long-term, then a larger and increasing proportion of ones future financial asset portfolio could consist of Roth assets.

For estate planning purposes, Roth retirement accounts can have some very significant advantages over traditional tax-advantaged retirement accounts.

If a family’s financial model indicates that there is a strong possibility that they will still have some tax-advantaged account assets at death, then those should be Roth tax-advantaged account assets, when feasible. Roth assets can be inherited by children and other designated beneficiaries, and these inherited Roth assets can also grow tax-free over the expected life of the person inheriting with certain mandatory withdrawal requirements.

For example, this means that a child inheriting from a very elderly senior citizen parent Roth retirement account assets, when that child is age 50, could perhaps enjoy another 40 years of tax-free investment growth with an income stream along the way. Under current law the child would face from mandatory, but non-taxable withdrawals. Only when withdrawn asset have appreciated in taxable accounts, would the fruit of these inherited Roth assets be subject to short-term or long-term capital gains taxes. Traditional tax-advantaged retirement accounts do not provide these very significant and valuable estate planning benefits.

You should note that the rules regarding Roth retirement plan accounts are in flux.

It is not clear what they might be over the course of your life. However, income limitations have changed and traditional to Roth asset conversions seem to be possible without income restrictions during 2010. These year-to-year changes are the reason why it makes a lot of sense to download from the IRS website and read the relevant US income tax publications, including IRS Publication 560 and IRS Publication 590. Again, consulting a knowledgeable certified public accountant may help you with current rules strategy.

Furthermore, you should also use the top retirement investment planning calculator to better understand the potential size of your projected Roth retirement nest egg assets in the future. You should find out whether you could be one of the minority of the US taxpaying population that could mass significant Roth retirement account assets and be able to pass them to your heirs with the associated tax advantages to your beneficiaries.

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Retirement planning calculator software is highly recommended, when you want to develop a superior family financial strategy

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The personal finance plan essays on this free website supply important thoughts about financial planning strategy topics that you may wish to consider. Our publications can help you in your efforts to establish a high quality, full life personal financial planning strategy. In addition, to produce a fully comprehensive long-term money management strategy depends upon you using superior financial planning software with the top investment planning software and the leading financial planning tools.

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Tax-Advantaged Retirement Savings Plans

You may have the opportunity to make investments into both individual retirement (IRA) accounts and into employer or self-employed tax-advantaged retirement plans, such as a 401k. In general, if your retirement saving planning allows sufficient annual retirement savings from your earnings, most retirement investment advisers would recommend that you make the full contributions each year into these various plans through out your employment up to when your retire.

Even when you find that you cannot deduct from your income taxes your annual contributions to retirement plans, very often it still makes long-term retirement financial planning sense to make those IRA and 401k contributions, since future appreciation of these assets would be sheltered from ongoing taxation.

Traditional Tax-Advantaged IRA Contributions Versus Roth Retirement Account Investments

The article that follows provides information that will allow you to understand better the trade-offs between “traditional” and “Roth” tax-advantaged retirement accounts. Understanding the trade-offs between traditional IRA and 401k retirement contributions versus Roth 401k retirement plan contributions and Roth IRA contributions requires automated analysis of all the factors that impact this decision. Back-of-the-envelope calculations can easily be simplistic, incorrect, and deceptive. This decision can only properly be made with the assistance of a comprehensive retirement planning tool. If you do not have access to retirement planning software that can do this analysis for you, you really should get such a retirement planning software tool. The dollar amounts involved can be very large over a lifetime. Following uninformed instincts can lead to a highly sub-optimal retirement savings plan and you could accumulated many thousands of dollars less than you might save with a more optimal tax-advantaged retirement investing strategy.

For the majority of Americans, such retirement planning tools develop projections indicating that it would be more advantageous to make contributions to traditional tax-advantaged retirement accounts rather that Roth tax-advantaged retirement accounts. This tends to be true, whenever those saving for retirement can take advantage of the current tax deductibility features of traditional tax-advantaged 401k and IRA account investments.

However, when retirement savers cannot take advantage of current deductibility to reduce current taxable income and their income still allows some level of retirement plan contributions, then Roth contributions are preferred, if the tax rules allow such Roth retirement plan contributions. While the majority of retirement savers would prefer traditional retirement plan contributions to reduce current taxable income, whenever possible, you should monitor the situation each year to understand the rules in effect in a particular tax year. Unfortunately, the tax-advantaged retirement plan account rules are quite complex and some rules have been shifting from year to year.

The best way to understand this topic yourself is to download from the IRS website Publications 560 and 590. Grab some coffee and dedicate a few hours to the task of learning about retirement plan taxation. This could be a very valuable expenditure of your time, particularly if you want to answer the question: “how much do I need to retire?” and you recognize that whether your retirement savings account assets are “pre-tax” or “after-tax” can make a huge difference in determining how much money do I need to retire?!. Of course, a knowledgeable certified public accountant could also be helpful, if you would rather pay someone else to help you learn the rules.

The retirement account article that follows provides information that will allow you to understand better the trade-offs between “traditional” and “Roth” tax-advantaged retirement accounts. A subsequent article discusses the estate planning and the inheritance advantages of Roth retirement savings accounts, which can be very substantial, if your assets are likely out-live you.