What You Don't Know - Isn't Helping You!


The bulk of my clients are middle income couples and all I could feel was dismay when I saw this chart from the Bankers Life Center for a Secure Retirement. There in plain English was a troubling fact, that less than ½ of middle income boomers are confident they understand the nuances of Roth Retirement Accounts.

Maybe boomers are busy enjoying life or checking their online brokerage accounts (because of the Trump rally…), so their minds are elsewhere. Perhaps it’s up to us – as financial professionals to continually shed light on this gift from the IRS.

Let’s go with the latter.

We’ll start by doing what the youngsters do and get some background from Wikipedia.

A Roth IRA (Individual Retirement Arrangement) is a retirement plan under US law that is generally not taxed, provided certain conditions are met. The tax law of the United States allows a tax reduction on a limited amount of saving for retirement. The Roth IRA's principal difference from most other tax advantaged retirement plans is that, rather than granting a tax break for money placed into the plan, the tax break is granted on the money withdrawn from the plan during retirement.

I’ll share more on the ins and outs of the Roth momentarily, but first a bigger point.

When middle income families fail (for whatever reason) to take advantage of their slice of government support, I get alarmed and even a little mad. Too often this group gets the proverbial shaft. The short end of the stick. Truthfully, I’m a little riled up right now. I just read a book about how middle America is being fleeced by Wall Street and the government is letting them get away with it. Not a light and romantic read if you must know.

The book is called A Capitalist's Lament: How Wall Street Is Fleecing You and Ruining America. (I DO NOT recommend this book, if you want to have a pleasant holiday!)

So when they (experts) talk about the markets being a casino (with the odds stacked against us mere mortals) it bothers me. But I am more disturbed when people don’t use the tools (and gifts) they are given. When the average Joe's don’t take the time to learn ways they may help themselves.

But I digress. Let’s talk about a Roth IRA and why YOU should have one if you don’t already.

Clearly designed for Main Street, rather than Wall Street, the Roth IRA enables you to grow your money TAX - FREE. With traditional tax-deferred accounts (401K, etc.) you pay tax in the future when you take the income. In this case, you don’t defer the tax, you pay it. Then your money starts growing but you don’t pay tax on that growth.

With normal (taxable) account when your accounts generate interest or capital gains, etc. you pay a portion of that increase to the IRS. You get a 1099 in the mail, which is the financial institutions way of saying CONGRATS! Now fork a bit of that over to the Treasury.

With Roth accounts, there are no 1099’s, which means that once you put money in your Roth IRA, you don’t pay any tax on the gains. (As long you wait until you’re 59 ½ to take it out.)

There are always a few catches so let’s a bit of that out of the way now.

As I mentioned earlier, the Roth IRA is designed for main street. What that means is that higher income earners aren’t eligible. See chart below from www.rothira.com.

So unfortunately, Bill Gates can’t use this vehicle because he makes too much money. (Bless his heart!)

Another caveat is that you must have working wages. My children work but, because I don’t pay them, they are not eligible for this wonderful, tax-advantaged account. That’s a joke by the way. I pay them dearly…Anyway, what I mean is that you must have real wages.

(Note: there are certain exceptions that allow one spouse to contribute for a nonworking spouse and I’ll outline those rules in a future post.)

If you qualify, the contribution limits are below. (You’ll see the IRS’s charity only goes so far…)

I’ll cover this topic in future posts. For today, my point was two-fold. First, to give you a few details on the Roth IRA. Second, and much more importantly, is to light a fire under you. As I mentioned earlier, middle income earners too often draw the shortest straw. The book I mentioned earlier (A Capitalist’s Lament) has upset my stomach and my psyche. Most people don’t know that many financial firms and the perpetrators who caused what occurred in 2007/2008, got away virtually unblemished. Oh sure, some companies paid fines but that didn’t amount to anything. (Goldman Sachs paid $500 Million but that was on profits of $13 Billion dollars. That wasn’t even a drop in the bucket. It was a teardrop and it didn’t come from them, it came from me and you!)

But Joe and Sally Retirement weren’t so lucky. If they retired into that garbage (A 50% drop in their retirement accounts, they were changed forever. Maybe never to recover. Joe retirement spends his time at the golf course all right. Driving that truck that picks up the balls on the range.

That irks me. So please do yourself a favor: Learn, and make use of, whatever tax savings or tax advantaged rules the government will give you. You’ll be better off for it.

That’s just the way it works!

Investment advisory services offered through Brookstone Capital Management, LLC (BCM), a registered investment advisor. BCM and (Strataxa Retirement Advisors, LLC) are independent of each other. Insurance products and services are not offered through BCM but are offered and sold through individually licensed and appointed agents.

Information provided is not intended as tax or legal advice, and should not be relied on as such. You are encouraged to seek tax or legal advice from an independent professional.


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Darryl Rosen MBA, RICP

Darryl Rosen is the founder of Rose Advisory Group, and operates www.RealRetirementAdvice.com as a way to help others create their ideal retirement. He is obsessed with helping people create safety, simplicity and strength in their financial future. Darryl’s clients enjoy his straight-forward, plain-spoken guidance, strategies to minimize taxes and ability to generate investment returns, while minimizing risk so his clients can sleep at night! Darryl is licensed to provide guidance on securities and insurance solutions and has achieved the highly desired Retirement Income Certified Professional (RICP) designation.

Darryl is the creator of the well-known SECURiMENT™ Retirement Planning Method. A simple to understand and implement planning method that demystifies retirement planning so that people can take action. Visit Rose Advisory Group to learn more! 

Investment advisory services offered through Brookstone Capital Management, LLC (BCM), a registered investment advisor.  BCM and (Rose Advisory Group) are independent of each other.   Insurance products and services are not offered through BCM but are offered and sold through individually licensed and appointed agents. Information provided is not intended as tax or legal advice, and should not be relied on as such.  You are encouraged to seek tax or legal advice from an independent professional.