• Skip to primary navigation
  • Skip to main content
  • Skip to primary sidebar
  • Skip to footer

Wilcox Attorneys, PA

Wilcox Attorneys, PA an Arkansas Estate Planning & Trust Information Center

Northwest Arkansas Estate Planning Attorneys (479) 443-0062

Client Vault
  • Home
  • Our Firm
    • Our Firm
    • About the American Academy
    • Advantages of Working With Our Firm
    • Attorney and Staff Profiles
    • News & Events
    • Speaker Connection
  • services
    • Asset Protection & Business Planning
    • Elder Law & Medicaid Services
    • Estate and Gift Tax Figures
    • Estate Planning Services
    • Family-Owned Businesses & Farms
    • Incapacity Planning
    • Legacy Planning
    • Pet Planning
    • Secure Act
    • Special Needs Planning
    • Trust Administration & Probate
  • Webinars
  • Practice Areas
  • Resources
    • DocuBank
    • Elder Law Reports
    • Estate Planning Resources
      • Estate Planning Articles
      • Estate Planning Checkup
      • Estate Planning Definitions
      • Estate Planning Reports
      • Incapacity Planning Definitions
      • Is Your Estate Plan Outdated?
      • Top 10 Estate and Legacy Planning Techniques
    • Frequently Asked Questions
      • Estate Planning
      • Frequently Asked Questions for Families Without an Estate Plan
      • Incapacity Planning
      • Legacy Wealth Planning
      • Medicaid Planning
      • Pet Planning
      • Probate
      • Trust Administration & Probate
    • Newsletters
    • Pre Consultation Form
    • Trust Administration & Probate Resources
      • Bereavement Resources
      • How to Know if You Need Extra Help With Your Grieving
      • Loss of a Loved One
      • The Mourner’s Bill of Rights
      • Things You Need To Do When a Loved One Passes Away With a Trust
      • Things You Need To Do When a Loved One Passes Away With a Will
      • Trust Administration & Probate Definitions
  • Reviews
    • Our Reviews
    • Review Us
  • Contact Us
  • Blog

Does a Roth Make Sense for You?

October 31, 2011 by Audra Bailey Wilcox

Compliments of Our Law Firm,
By: The American Academy of Estate Planning Attorneys

Since Congress introduced the Roth IRA in 1997, certain retirement account owners have been able to choose between two kinds of accounts with very different features. Whether a Roth is the right option for you depends on a number of factors, including your income and your savings goals.

Traditional IRA

A traditional IRA is a tax-deferred account. Contributions to the account are made with pre-tax dollars, meaning that you get a tax deduction for money you put into your account, and you normally don’t pay income tax on your IRA funds until you start withdrawing those funds during retirement. Because you are not taxed on traditional IRA contributions, federal law requires that you begin taking a minimum annual distributions from your account shortly after you reach age 70 1/2. The exact amount of these annual distributions is determined by your life expectancy. You pay a penalty if you do not withdraw at least the minimum in any given year.

Roth IRA

A Roth IRA, by contrast, is a tax-free account. You do not get a tax deduction for Roth contributions in the year you make them. However, provided you follow certain rules, you can withdraw the principal and earnings on the account tax-free when you reach retirement age. Further, unlike a traditional IRA, a Roth carries no requirement that you take annual distributions beginning at age 70 1/2. This provides the potential for account funds to grow tax-free throughout your lifetime and makes a Roth IRA an appealing estate planning tool for many individuals.

Contribution Caps

Contribution limits for traditional and Roth IRA’s are the same. In 2011, those under age 50 may contribute up to $5,000 in earned income to an IRA. If you reach your 50th birthday before the end of 2011, you are eligible to make “catch up” contributions, bringing your total IRA contribution limit to $6,000.

Income Limits

Not everyone is eligible to contribute to a Roth IRA. If you are married filing jointly, your 2011 income must be below $169,000 in order for you to make a full contribution. The amount you may contribute is phased out as your income increases from $169,000 to $179,000. If your income is $179,000 or higher, you are ineligible to contribute to a Roth IRA. The phase out range for individual filers in 2011 is $105,000 to $120,000.

Conversion

Regardless of your income, you have the option to convert a traditional IRA to a Roth IRA. When you convert, you pay income tax on all the funds in your traditional account, including both principal and earnings. However, after those funds are converted into Roth funds, they are never again subject to income tax.

If you won’t need to rely on your IRA for retirement income, a Roth conversion could be a smart estate planning choice. For example, if you’re 70 years old and have $300,000 in a traditional IRA, converting to a Roth would eliminate the need for you to take any future distributions from your account. So, if you earn 8 percent on the funds in your account and live to age 86, you’ll pass on well over $1 million to your heirs through your Roth IRA. Your beneficiary will take minimum required distributions based on their life expectancy. However, since it’s a Roth IRA, all the distributions to them will be income tax-free.

Roth 401(k)

With the popularity of Roth IRA’s, Congress expanded the concept to 401(k) plans. A Roth 401(k) is a hybrid of a traditional 401(k) and a Roth IRA, and it is only available if your employer offers you the option.

Like a traditional 401(k), a Roth 401(k) carries no income restrictions, and the usual 401(k) contribution limits apply. For 2011, you may contribute up to $16,500 if you are under age 50, and you may contribute up to $22,000 if you are age 50 or older. These limits apply to contributions made to both kinds of 401(k) plans; you cannot use a Roth 401(k) to double your 401(k) savings.

Like a Roth IRA, the funds contributed to a Roth 401(k) are not tax deductible; however, withdrawals are tax-free. A qualified estate planning attorney can help you put your retirement accounts to work for you and your beneficiaries.

Wilcox Attorneys, PA

DOWNLOAD OUR FREE ESTATE PLANNING WORKSHEET

There's a lot that goes into setting up a comprehensive estate plan, but with our FREE worksheet, you'll be one step closer to getting yourself and your family on the path to a secure and happy future.

Office Address

Fayetteville
2766 Millennium Drive
Fayetteville, AR 72703
Phone: (479) 443-0062

Office Address

Prairie Grove
1100 Division Street, Suite 4
Prairie Grove, AR 72753
Phone: (479) 846-6026

( By Appointment Only )

Office Hours

Monday9:00 AM - 5:00 PM
Tuesday9:00 AM - 5:00 PM
Wednesday9:00 AM - 5:00 PM
Thursday9:00 AM - 5:00 PM
Friday9:00 AM - 12:00 PM

Map

map for office
  • Facebook
  • LinkedIn
  • RSS
  • Twitter
  • YouTube

footer-logo

© 2023 American Academy of Estate Planning Attorneys, Inc.