4 Roth IRA Contribution Strategies

If you are considering switching to a Roth IRA contribution plan from your current retirement plan, you have a number of benefits to gain. The Roth IRA account option allows you to place post-tax dollars toward your retirement today in order to pay no taxes on your retirement withdrawals in the future. This option works best for an individual who has a low tax bracket in the present but anticipates a higher bracket in the future. 

#1 Traditional IRA Rollover

You can move into a Roth IRA model even if you have already made contributions into a traditional retirement account. You can roll over this account into the new structure, preserving the benefits of your previous retirement savings. You should note that you will have to pay taxes on the retirement account to do this because you did not pay taxes on those contributions previously. However, if you move the funds directly from a traditional account into a Roth IRA account, you will not be charged the 10 percent early withdrawal fee. You will have to pay only taxes at your current tax rate. 

#2 Employer Matching Options

Your employer may offer a matching plan for a retirement account. Typically, employers offer a 401(k) instead of an IRA. The 401(k) plan allows an employer to manage your retirement funds along with its general investments from all employees. If this is the case with your benefit plan, you will need to elect a Roth 401(k) instead of a Roth IRA. However, if you work for a small business, your employer may allow you to elect any retirement plan of your choosing and still match your contributions. In this case, you can set up the Roth IRA option, allowing your contributions and your employer's contributions to be deposited to this independent account. 

#3 Mix and Match Retirement Accounts

There is a low annual maximum on contributions to a Roth fund. The funds are designed for individuals who have low tax brackets and correspondingly low salaries. Most of these people do not put away a large amount for retirement because they live off their income, penny for penny. If you are able to make a larger contribution than the Roth program will allow, you can have both a traditional and a Roth IRA. Once you have met your Roth maximum, you can begin posting funds to the traditional account in an amount in excess of the Roth maximum but under the traditional account's maximum.

#4 Personal Contribution Strategies

Once you have decided which IRA option you will choose--rolling over your funds, electing corporate contributions or mixing and matching accounts--it is up to you to actually use your IRA. The best strategy is to consistently hold yourself accountable to a minimum contribution each month. You can do this by setting up an automatic withholding from your paycheck, moving your funds into the account before you have a chance to spend them. Think of this like any other fixed expense you have; budget for the savings, and you will never find yourself keeping the money to pay for other items. 

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