Skip to main content

Tag: retirement accounts

Traditional vs. Roth IRAs

IRAs can be an important tool in your retirement savings belt, and whichever you choose to open could have a significant impact on how those accounts might grow.

 

IRAs, or Individual Retirement Accounts, are tax-advantaged accounts used to help save money for retirement. There are two different types of IRAs: traditional and Roth. Traditional IRAs, created in 1974, are owned by roughly 35.1 million U.S. households. Roth IRAs, created as part of the Taxpayer Relief Act in 1997, are owned by nearly 24.9 million households.[i]

 

Both kinds of IRAs share many similarities, and yet, each is quite different. Let’s take a closer look.

 

Up to certain limits, traditional IRAs allow individuals to make tax-deductible contributions into the retirement account. Distributions from traditional IRAs are taxed as ordinary income, and if taken before age 59½, may be subject to a 10% federal income tax penalty. For individuals covered by a retirement plan at work, the deduction for a traditional IRA in 2019 has been phased out for incomes between $103,000 and $123,000 for married couples filing jointly and between $64,000 and $74,000 for single filers.[ii],[iii]

 

Also, within certain limits, individuals can make contributions to a Roth IRA with after-tax dollars. To qualify for a tax-free and penalty-free withdrawal of earnings, Roth IRA distributions must meet a five-year holding requirement and occur after age 59½. Like a traditional IRA, contributions to a Roth IRA are limited based on income. For 2019, contributions to a Roth IRA are phased out between $193,000 and $203,000 for married couples filing jointly and between $122,000 and $137,000 for single filers.2,3

 

In addition to contribution and distribution rules, there are limits on how much can be contributed to either IRA. In fact, these limits apply to any combination of IRAs; that is, workers cannot put more than $6,000 per year into their Roth and traditional IRAs combined. So, if a worker contributed $3,500 in a given year into a traditional IRA, contributions to a Roth IRA would be limited to $2,500 in that same year.[i]

 

Individuals who reach age 50 or older by the end of the tax year can qualify for annual “catch-up” contributions of up to $1,000. So, for these IRA owners, the 2019 IRA contribution limit is $7,000.4

 

If you meet the income requirements, both traditional and Roth IRAs can play a part in your retirement plans. And once you’ve figured out which will work better for you, only one task remains: opening an account.

 

Investment advisory services are offered through CapSouth Partners, Inc., dba CapSouth Wealth Management, an independent registered Investment Advisory firm. Information provided by sources deemed to be reliable.  CapSouth does not guarantee the accuracy or completeness of the information.  This material has been prepared for planning purposes only and is not intended as specific tax or legal advice.  Tax and legal laws are often complex and frequently change.  Please consult your tax or legal advisor to discuss your specific situation before making any decisions that may have tax or legal consequences.

 

This article contains external links to third party content (content hosted on sites unaffiliated with CapSouth Partners). The policies and procedures governing these third-party sites may differ from those effective on the CapSouth company website, as outlined in these Disclaimers. As such, CapSouth makes no representations whatsoever regarding any third-party content/sites that may be accessible directly or indirectly from the CapSouth website. Linking to these third-party sites in no way implies an endorsement or affiliation of any kind between CapSouth and any third party, including legal authorization to use any trademark, trade name, logo, or copyrighted materials belonging to either entity.

[i] https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-ira-contribution-limits

[i] https://www.ici.org/pdf/per23-10.pdf

[ii] https://www.marketwatch.com/story/gearing-up-for-retirement-make-sure-you-understand-your-tax-obligations-2018-06-14

[iii] https://money.usnews.com/money/retirement/articles/new-401-k-and-ira-limits

Keep Your Finances in Order When Divorcing Later in Life

Keep Your Finances in Order When Divorcing Later in Life

Divorcing later in life is becoming more commonplace among people 50 and over. Divorce among older couples has more than doubled since the 1990s. In 2015, 10 of 1,000 married people filed for divorce. Five of 1,000 married filed for divorce in 1990. The divorce rate for people 65 and older has tripled since 1990.[i]

For older couples thinking about “gray divorce,” ensuring your finances are in order may help ease the strain.

Here are four tips to help make it easier and less stressful:

  • Identify your individual incomes. The impact on older women may be especially difficult. Gray divorce forces many older women between the ages of 50-74 to continue full-time work, rather than retiring.[iii] Calculating future income and assets as a divorcee is important. Getting a divorce can devastate a couple’s finances.
    1. Determine income levels of each spouse. Divorced spouses will no longer be able to rely on their partners’ incomes. In gray divorces, men average income drops of 23%; women’s incomes drop by 41% on average.[ii]
  • Manage your retirement accounts
    1. Divorcing couples will also have to manage how they’ll divide their 401(k) and IRA accounts. After years in the workplace, many retirement accounts have grown substantially in size. Dividing those accounts while maintaining two households can get complicated and expensive. Often, workers listed their spouses as beneficiaries on retirement accounts and insurance policies.
  • Consider downsizing your home
    1. The home is one of the largest assets of older couples. It also generates some of the biggest expenses, especially if retirees maintain mortgage debt. Many older couples are going into retirement with mortgage debt, which can drain cash reserves. A better option might be downsizing to a smaller house or renting a place to offset the reduced household incomes.
  • Stay focused in more contentious divorces, long-time friendships can disintegrate and rifts can form in otherwise amicable families. Begin establishing relationships with your most trusted and loyal friends, which can help fortify your emotional stability and may help protect you against failing health from increased stress.  
  1. Overall, your individual needs and retirement goals will define the financial strategies you should address if divorcing later in life. If you have questions about the options available, or how a divorce could impact you financially, feel free to contact us.
  2. Sometimes divorces, even later in life, can get messy. While financial and budget management is important, guarding your emotional condition and ensuring you maintain a strong support network are important in sustaining long-term security and comfort. Establishing a firm emotional support system helps newly single individuals move forward and adapt to lifestyle changes.

Investment advisory services are offered through CapSouth Partners, Inc., dba CapSouth Wealth Management, an independent registered Investment Advisory firm. Information provided by sources deemed to be reliable. CapSouth does not guarantee the accuracy or completeness of the information.  This material has been prepared for planning purposes only and is not intended as specific tax or legal advice.  Tax and legal laws are often complex and frequently change.  Please consult your tax or legal advisor to discuss your specific situation before making any decisions that may have tax or legal consequences.

This article contains external links to third party content (content hosted on sites unaffiliated with CapSouth Partners). The policies and procedures governing these third party sites may differ from those effective on the CapSouth company website, as outlined in these Disclaimers. As such, CapSouth makes no representations whatsoever regarding any third party content/sites that may be accessible directly or indirectly from the CapSouth website. Linking to these third party sites in no way implies an endorsement or affiliation of any kind between CapSouth and any third party, including legal authorization to use any trademark, trade name, logo, or copyrighted materials belonging to either entity.

Investment & Wealth Management

 

[i] http://www.pewresearch.org/fact-tank/2017/03/09/led-by-baby-boomers-divorce-rates-climb-for-americas-50-population/

 

[ii] http://time.com/money/4229581/divorce-after-50/

[iii] http://www.cbsnews.com/news/the-devastation-of-divorce-for-older-women/

Help us keep you informed!

Let us do the work and keep you updated! Sign up for the CapSouth financial updates.

You have Successfully Subscribed!