Do I need to open a Roth IRA or can I just use a taxable account?

I am 28 years old and currently making well into the high six figures. I am maxing out my 401(k) and investing any additional funds I have into a taxable account. Is there any benefit to opening a Roth IRA? I like the fact that the earnings are tax-free, but I am planning to use the funds before age 59 1/2.

Financial Planning, Investing, IRAs
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March 2017
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If you are earning a high six figures income, the odds are you can not fund a Roth IRA, outright.

The limits the IRS allows, which are all based on your Modified Adjusted Gross Income (MODI), is your Adjusted Gross Income with a few additional adjustments as outlined in IRS brochure 590-A. A single person limits are $118,000 and phases out by $133,000. For a married person, the income limits are $186,000 and phases out at $196,000.

Some alternatives are, if your employer adopts/ puts into place a Roth 401(k). Roth 401(k)s are becoming a more popular benefit with employers and allow you to contribute without the income restrictions and can be in addition to having a regular 401(k). There are some subtle differences between a traditional Roth IRA and the Roth 401(k), but that is for another time. You could also do a back door Roth, but I would look at the breakeven process of paying current taxes and the time it would take to get your money back and eventually be tax-free. You could fund a tax deferred account or some high level tax alternatives with insurance or real estate, but check with your tax advisor before implementing any strategies and make sure you understand the risk involved.

As a point of clarification, earnings are not tax-free, but grow tax deferred. Withdrawals of principle (money you contributed) and earnings are tax-free after age 59 1/2. Principle can be withdrawn after 5 years of account opening, tax free, but earnings, unless you meet certain exceptions listed in IRS brochure 590-A, will most likely be subject to the early withdrawal penalty of 10% and may be taxable. Speak to your tax advisor if you are seriously considering this strategy.

March 2017
March 2017
March 2017
March 2017