Robert Loe CPA

Planning for Retirement

RETIREMENT. It’s a time where you should be able to enjoy life to its fullest extent. A large part of being able to do so is through proper planning and saving for the future. A common way to plan and prepare is by taking advantage of a retirement account. One of the most common options that individuals use is opening or continuing to fund a Traditional Individual Retirement Arrangement (IRA) or a Roth IRA. Either one is a perfectly suitable choice that has both advantages and disadvantages which should be considered in order to decide which option best suites your needs. When planning for retirement it’s important to understand how much it will cost. There are several useful tools when determining this factor and assessing your financial needs.

US Securities and Exchange Commission: Roadmap to Saving and Investing

Social Security Administration: Benefits Estimator

American Association of Retired Persons: Retirement Calculator

How do I set up a retirement account?

There are a few ways to set up your IRA account. This can be done through an insurance company, an investment management firm as well as banks and other financial institutions. Opening up the account with one of these can help streamline the process and make it very easy. However, as with most things in life research is very important when choosing who to go with. It is important to understand your needs and the services that the organizations provide as well as any fees associated with the account.

Now let’s breakdown two common types of IRA’s so that the differences can be better understood.

Traditional IRA:

The traditional IRA is a way to both save for retirement as well as help reduce your current tax liability. Contributions to a qualified IRA plan are deductible up to the max limit allowed by the IRS. For 2016 that limit is the lesser of $5,500 ($6,500 if you’re age 50 or older)* or your taxable compensation for the year. However, some limitations may apply if the individual or spouse has a retirement plan from an employer (Click here for more information). Any amount contributed over the IRS limit is subject to taxation. Traditional IRA’s generally have an age limit cutoff for contributions of 70 ½. The downside to this type of accounts is that it’s affected by required minimum distributions (RMD’s). These must be taken starting April 1st in the year after you turn 70 ½ and by December 21st of subsequent years.

Roth IRA:

The Roth IRA is similar to the traditional IRA but with some distinct differences. With the Roth IRA, you cannot take any deductions for the contributions made to the account. At this point you might be asking “Why even choose the Roth as an option”? The benefit of a Roth IRA is that you pay the taxes on the contributions now and then during retirement, the qualified distributions are tax-free. The contribution limit for the year is the same as a traditional IRA. For 2016 that limit is the lesser of $5,500 ($6,500 if you’re age 50 or older)* or your taxable compensation for the year. In addition to that, the individual can continue to make contributions to the Roth after 70 ½ (Age limit for Traditional). Another advantage of the Roth is that there are no required minimum distributions if you are the original owner of the account.

Now that the basics have been covered, let’s look at some other information about the two accounts. For both accounts the deadline to make contributions is up to the tax return filing deadline. For the 2016 tax year, this would mean that you can contribute up until April 17, 2017 (April 15th falls on a Saturday so by law the deadline moves to the next Monday). Money can be withdrawn at any time but for a traditional IRA the amount is subject to taxation whereas a withdrawal from a Roth is not normally taxable if it is a qualified distribution. However, for both accounts there exists an early withdrawal penalty if the account holder is under age 59 ½ unless they qualify for an exception. (Click here for List of Exceptions)

Keep in mind that you are also not obligated to choose between a traditional IRA and a Roth IRA. There is also the option of opening both types of accounts if you desire to do so but keep in mind that the contribution limit for 2016 is $5,500 ($6,500 for age 50 or older)* is the total limit for all retirement accounts combined.

For more information contact your financial advisor or visit the IRS website at


*Some limitations on deductible contributions may apply. Use chart below to find out if you are effected by these limitations

If Your Filing Status Is… And Your Modified AGI Is… Then You Can Take…
single or
head of household

$61,000 or less

a full deduction up to the amount of your contribution limit.

more than $61,000 but less than $71,000

a partial deduction.

$71,000 or more

no deduction.

married filing jointly or qualifying widow(er)

$98,000 or less

a full deduction up to the amount of your contribution limit.

 more than $98,000 but less than $118,000

  a partial deduction.

 $118,000 or more

 no deduction.

married filing separately

 less than $10,000

  a partial deduction.

 $10,000 or more

 no deduction.

If you file separately and did not live with your spouse at any time during the year, your IRA deduction is determined under the “single” filing status.,-Employee/2016-IRA-Contribution-and-Deduction-Limits-Effect-of-Modified-AGI-on-Deductible-Contributions-If-You-ARE-Covered-by-a-Retirement-Plan-at-Work

**Image from:

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