Nathan Edwards

CFP®, CFA
Personal Finance, Retirement, Investing
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“Nathan Edwards is a financial planner and investment manager with IMG Wealth Management in Jacksonville, FL, serving high net-worth and institutional clients.”
Firm:

IMG Wealth Management

Job Title:

Financial Planner, Analyst

Biography:

Nathan Edwards is a CERTIFIED FINANCIAL PLANNER™ professional and CFA charterholder. He is committed to the idea that establishing clearly defined financial objectives is the keystone of the financial planning process. With these objectives as the foundation for a viable financial plan, Nathan believes that it is possible to elevate one's peace of mind and financial well-being both now and into the future.

IMG Wealth Management was created by professionals from Investment Management Group in 2017 to meet the specific needs of high net-worth individuals and institutions. Nathan and IMG Wealth Management's team of financial planners, investment managers, and support staff have developed a business model tailored to the unique requirements of their core clientele.

Assets Under Management:

$15 million

Fee Structure:

Fee-Based
Fixed

CRD Number:

5219718

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2 weeks ago
    Investing, Financial Planning

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    IRAs, Retirement Plans
What are the risks associated with a Roth IRA?
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There are several varieties of risk that could be associated with a Roth IRA. If we’re starting from scratch, this requires some explanation.

The “IRA” portion of a Roth IRA is an acronym that stands for Individual Retirement Arrangement. Straight from the IRS, “An individual retirement arrangement (IRA) is a tax-favored personal savings arrangement, which allows you to set aside money for retirement.”

This is significant because the qualities of the “arrangement” itself are dictated by its terms. In the case of the Roth Individual Retirement Arrangement, the terms prescribe that annual contributions can be made on an after-tax basis up to specified dollar limits according to specified annual income thresholds to accounts established with entities approved by the IRS to act as trustees or custodians of IRAs. The terms also dictate that any contributions made can be withdrawn at any time without creating a taxable event. However, earnings on contributions must remain in the account until the latter of the owner having a Roth IRA open for five years and the account owner’s achievement of age 59 ½ to avoid paying taxes and a 10% penalty on the distribution of earnings. Once the latter of these events has occurred, earnings can be distributed from the account tax-free.

The terms of the Roth Individual Retirement Arrangement also dictate what types of investments can be made within the account. Approved and disapproved investments within IRAs are listed by the IRS here. With this information, we can see that the Roth IRA itself is not an interest-bearing type of investment or account, but that the types of investments made within the Roth IRA will govern the investment returns and risks associated with the Roth IRA.

So, if the question is “What are the investment risks associated with a Roth IRA?” the answer will depend on the types of investments made within a particular Roth IRA. Given the wide range of investments available to be made within a Roth IRA, one can usually establish an investment allocation within their Roth IRA to reflect their personal investment risk tolerances.

As far as some other risks that are associated with a Roth IRA, a few might, arguably, include opportunity cost, tax risk, and liquidity risk.

The opportunity cost of a Roth IRA could be appraised against literally anything else one could do with their assets other than contributing them to a Roth IRA. For our present purpose, though, we’ll stick to the opportunity cost of contributing to a Roth IRA instead of a Traditional IRA. Because, as of 2017, a total of $5,500 ($6,500 for those over age 50) can be allocated between one’s Traditional and Roth IRAs, contributing one dollar to a Roth IRA means that one less dollar can be contributed to a Traditional IRA. Because of the different tax treatments of these two types of IRAs, this limitation could be meaningful to some. Which leads to the next risk associated with a Roth IRA, tax risk.

Because Roth IRA contributions are made on an after-tax basis, and can eventually be distributed tax-free – if it is a qualified distribution – the Roth IRA can possess advantages over pre-tax contributions to accounts like a Traditional IRA if one’s taxes are lower when the contributions are made, and higher when distributions are taken. Tax rates, and even retirement income, can be tricky to forecast into the future. This being the case, those that contribute to a Roth IRA run the risk of their tax rate being lower upon eventual qualified distributions from the account than when contributions were made; potentially making those contributions less tax advantageous in hindsight if one had the ability to contribute on a pre-tax basis when the contributions to the Roth IRA were made.

We covered that there are stipulations about when tax-free distributions of the earnings within a Roth IRA can be made. Until certain conditions are met - namely, the latter of having a Roth IRA for 5 years and the owner of the Roth IRA achieving age 59 ½ - earnings within a Roth IRA would be subject to taxation and a 10% penalty. These stipulations make distributions of the earnings from this account less desirable during certain periods of time. This raises questions of liquidity in terms of barriers to access to the assets within a Roth IRA, which is a type of risk.

While risks to establishing a Roth IRA exist, they should be weighed against any potential benefits within the context of the potential owner’s personal financial situation.

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