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Retirement Planning



Which Retirement Account is Right for Me?

Dec 20, 2013 | Posted in Retirement Planning

In addition to a company-sponsored retirement account like a 401(k) or a 403(b), did you know there are Individual Retirement Accounts (or IRAs) that can provide additional tax advantages for retirement savings in the United States?

Financial Advisors at BECU Investment Services* can help you navigate the world of IRAs and determine which type of retirement account works best for you. After talking with an advisor at BECU Investment Services, you may discover that you can find greater control, flexibility and assistance in monitoring your investments by switching to a different type of retirement account.

5 Key Questions Answered

  1. How many types of retirement accounts are available?
  2. Should you choose a Traditional or Roth IRA?
  3. Who is eligible for IRAs?
  4. What about taxes and distributions?
  5. A quick comparison of Traditional and Roth IRAs

1. How many types of retirement accounts are available?

Financial Advisors at BECU Investment Services are available to consult with you about which types of retirement accounts will work best for you.

There is a wide variety of retirement accounts available in the U.S. and a complex number of considerations to keep in mind when choosing which type is right for you. Some of the types of retirement accounts available through BECU Investment Services* include: Traditional IRA, Roth IRA, Roth Conversion, Rollover IRA, Stretch IRA, Coverdell IRA, SEP IRA, Simple IRA, and Individual (K).

If you currently have retirement funds in company-sponsored accounts like a 401(k), VIP or a 403(b), Financial Advisors at BECU Investment Services* can help you to transfer assets from employer-sponsored accounts into a Rollover IRA while maintaining the tax deferral benefit on potential growth until withdrawals are made. With Rollover IRAs, you may discover greater control over your money, greater flexibility over your investment choices and beneficiary options, and greater assistance in monitoring your investments.

You can learn more about Rollover Strategies online or by meeting with an advisor.

2. Should you choose a Traditional or Roth IRA?

Because both Roth IRAs and traditional IRAs present compelling advantages, individual circumstances typically determine which choice is best for a given investor.

The decision requires a careful analysis of eligibility rules, tax issues, distribution requirements, and regulations governing rollovers from employer-sponsored plans. So talk with your tax advisor as well as a Financial Advisor at BECU Investment Services to determine which is right for you.

Before exploring the differences between Roth IRAs and traditional IRAs, it is worthwhile first to review the attributes they share, such as maximum annual contribution limits:

  • For the 2008 tax year, the maximum annual contribution to either a traditional or Roth account is $5,000, with an additional $1,000 contribution permitted for investors aged 50 and older.
  • Non-qualified withdrawals before age 59½ are subject to federal income taxes and, potentially, an additional 10% withdrawal penalty.

Regardless of which IRA you maintain, you are likely to have a wide range of investment choices. We can customize a portfolio specifically tailored for you utilizing investment solutions such as mutual funds, stocks, bonds, cash investments or some combination, depending on your risk tolerance and time horizon.

3. Who is eligible?

The IRS has established eligibility criteria depending on income and age. Anyone with earned income can establish or contribute to a traditional IRA up to age 70½.

Roth IRA Modified Adjusted Gross Income (MAGI) Thresholds

Partial Contribution No Contribution Permitted
Single Taxpayer $101,001-$115,999 $116,000 and above
Couple Filing Jointly $159,001-$168,999 $169,000 and above

Investors are eligible for a Roth IRA only if they meet income thresholds described below. In addition, contributions to a Roth IRA may continue beyond age 70½ as long as an investor has taxable income.

4. Taxes and Distributions

Tax distinctions between traditional IRAs and Roth IRAs, as well as distribution rules, are important considerations when choosing between the two.

Contributions to a traditional IRA may be tax deductible depending on an investor's modified adjusted gross income (MAGI), filing status and whether he or she contributes to an employer-sponsored plan at work. Traditional IRAs are also subject to minimum distribution rules, whereby investors must begin required minimum distributions (RMDs) on an annual basis once they reach age 70½.

The amount of the distribution is based on the value of the account, the life expectancy of the investor and, potentially, the investor's beneficiary. Required minimum distributions are taxed as ordinary income, but not all of the distribution is taxable if non-deductible contributions were made.

With a Roth IRA, contributions are not deductible, regardless of an investor's income. Qualified withdrawals are tax free as long as an investor has maintained the account for at least five years and is age 59½ or older, and RMD rules do not apply to Roth IRAs. For many people, a Roth IRA may result in more after-tax income during retirement because of the tax-free status of qualified withdrawals.

5. A quick comparison between Roth IRAs and Traditional IRAs

Here are some important distinctions, but talk with a Financial Advisor to learn about complex rules.

Although there are additional rules, this table summarizes some of the most important distinctions between traditional IRAs and Roth IRAs. There are additional rules governing IRAs, including regulations that permit penalty-free withdrawals for qualified educational expenses and the purchase of a first home. Because the rules are complex, consult a financial advisor before making final decisions.

Traditional IRA Roth IRA
Maximum Annual Contribution $5,000 for 2008. Investors age 50 and older may contribute an additional $1,000. $5,000 for 2008. Investors age 50 and older may contribute an additional $1,000.
Eligibility Anyone with earned income up to age 70½. Income thresholds are imposed by the IRS. Investors with earned income may continue contributions beyond age 70½.
Taxes Contributions may be tax deductible. Withdrawals subject to income taxes. Contributions are never tax deductible. Qualified withdrawals are tax free.
Distributions Required after age 70½. Not required.
Rollovers From Employer-Sponsored Retirement Plans

(Restrictions, limitations and fees may apply)
Direct rollovers permitted from traditional plans to traditional rollover IRAs. Beginning in 2008, direct rollovers will be permitted from traditional plans but proceeds will be taxable.

Next Steps: You can discover more online about financial advisors at BECU Investment Services and free educational seminars available through BECU Investment Services. Please contact us with any questions at 206-439-5720 or 800-233-2328, ext. 5720.

This article was prepared by Standard and Poor's and is not intended to provide specific investment or tax advice for any individual. Consult your Financial Advisor or Tax Advisor if you have any questions.

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*Financial Advisors are with and Securities, Advisory Services are offered through LPL Financial, Member FINRA/SIPC. Insurance Products are offered through LPL Financial or it’s licensed affiliates. BECU and BECU Investment Services is not a registered broker/dealer and has a brokerage affiliate arrangement with LPL Financial. Investments are:

Not NCUA/NCUSIF Insured Not Credit Union Guaranteed May Lose Value Not Obligations of BECU

LPL Branch Office located at BECU, 12770 Gateway Drive., Tukwila, WA 98168

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