Have you heard of a Roth 401(k)?

You’re probably familiar with traditional 401(k) plans, and we hope you know about Roth IRAs as well. (If not, check out these 5 things you should know about Roth IRAs). But did you know there’s also a Roth 401(k)? Basically, a Roth 401(k) is a 401(k) account to which you can contribute either pre-tax dollars, like a regular 401(k), or post-tax dollars, like a Roth IRA. All your contributions grow tax-free, but your pre-tax contributions will be taxable when you withdraw them in retirement and your post-tax contributions will be tax-free. It’s technically called a “designated Roth” account, and it’s an option your employer can add to your company 401(k) plan. The same provision for a Roth option can also be added to other kinds of qualified retirement plans, such as 403(b) or 457 plans. If you own a business and sponsor a qualified retirement plan for yourself and your employees, you may want to consider adding a Roth option. And if you’re self-employed and have no employees except your spouse, you could establish a solo 401(k) plan that allows Roth contributions. So why would you need a Roth 401(k) if you already have a Roth IRA? Here are four ways

January 8, 2019 No Comments

Five facts about Roth IRAs

By Ehab Alalfey Azzad Investment Advisor Fresh off a trip to an IRA conference organized by consumer advocate and IRA expert Ed Slott, Azzad’s Ehab Alalfey shares with you five facts about Roth IRAs that you may not know. Do you have a Roth IRA? Do you know how it’s different from a traditional IRA? There’s much to learn about Roth IRAs, but we’ve got you covered at Azzad. We make it a point to stay on top of trends and changes in the industry. Here are five facts about Roths you might not know: You can withdraw your contributions any time–tax and penalty free. This is true regardless of your age and what you intend to do with the money. This only applies to the money you contributed to the account but not to the investment earnings, which causes confusion for many people. So don’t let not knowing if you might need the money later stop you from making a contribution. You can always withdraw it later, no strings attached. You are never too old to contribute. Unlike traditional IRAs, which don’t allow contributions after the year you turn 70.5, Roth IRAs allow you to make tax year contributions regardless

April 10, 2018 No Comments

Three strategies to reduce your RMDs

Nothing lasts forever, not even the tax deferral on your IRA. When you turn 70½, the government will require that you withdraw money from your IRA; those withdrawals are known as required minimum distributions, or RMDs. But what if you don’t need the money? What if you want to avoid a tax hit? Here are three strategies to help reduce your RMDs. Be charitable. If you’re 70½ and planning on giving money to charity anyway, consider making a qualified charitable distribution (QCD) from your IRA. You can transfer up to $100,000 annually from your IRA to a charity free to tax. The QCD will satisfy your RMD without increasing your taxable income. Be careful though — make sure your QCD is done properly. Go Roth. If reducing RMDs is a top concern for you, you may want to consider converting some or all of your IRA into a Roth. This is because you aren’t required to take RMDs from your Roth IRA during your lifetime. While you will pay taxes on your conversion, you can exchange the one-time tax hit for a lifetime of never having to worry about RMDs and their tax consequences. Note: your beneficiaries will need to

September 7, 2017 No Comments

Rolling over your traditional 401(k) to a Roth IRA

Do you have a 401(k)? Ever wondered if you could roll over that account into a Roth IRA? You might be surprised to hear that it’s possible. You can make a direct or 60-day rollover from a 401(k) plan (or other qualified plan, 403(b) plan, or governmental 457(b) plan) to a Roth IRA, as long as you meet certain requirements.* First, you must be entitled to withdraw money from your plan. If you no longer work for the employer who sponsored that 401(k), then you would be eligible to do this rollover, and in some cases you may be able to withdraw your contributions or your employer’s contributions while you’re still working (for example, once you’ve reached age 59½). Second, your distribution must be an “eligible rollover distribution.” Distributions that cannot be rolled over include hardship withdrawals, certain periodic payments, and required minimum distributions (RMDs). Third, you must include the taxable portion of the distribution in your gross income in the year you make the rollover (“conversion”). But that’s the price you have to pay to potentially receive tax-free qualified distributions from your Roth IRA in the future. Fourth, if your distribution includes both after-tax and pre-tax dollars, you can

July 31, 2017 No Comments

Understanding taxes on your investment accounts

At this time of year many Americans are thinking about taxes. Even if you’ve already filed your 2016 returns, it’s a good idea to start thinking about next year. We know that figuring out taxes on your investments can be confusing, so here are some things you should know. Understand the taxes you pay on investment income When you sell a stock or mutual fund at a profit, you will usually get taxed. If you sell within the first year you own that security you’ll pay tax at ordinary rates, which could be as high as 39.6% depending on your income level. But the tax code is designed to encourage long-term investing, so if you hold that same security for longer than a year, you’ll pay a lower rate — a maximum of 20% for most stocks and funds. Strive for long-term investing in taxable accounts and minimize frequent trading whenever possible. Keep in mind that you’ll also pay tax on mutual fund distributions even if you don’t sell any shares of the fund yourself. When the portfolio manager sells some of the fund’s holdings, as happens in the normal course of managing the fund, the taxable gains are

April 4, 2017 No Comments

The cost of not tracking your IRA contributions

Do you know how much you’re allowed to contribute to your IRA each year? Are you periodically tracking your deposits? Contributing more than the permitted amount can result in costly penalties. Fortunately, there are ways to fix it. How can it happen? Let’s look at a hypothetical example. In 2016, Ahmad, age 51, set up monthly automatic bank deposits to his traditional IRA that totaled $8,500. However, the IRA contribution limit for 2016 is $5,500, with a catch-up contribution for individuals over 50 of $1,000, for a total of $6,500. Although we believe automatic deposits are the best way to invest for your goals, it’s also an easy way to unintentionally contribute too much to your IRA. You may also end up with an excess contribution if you contribute to a Roth IRA and later discover that your modified adjusted gross income (MAGI) was above the Roth IRA income limit. And because you’re not allowed to deposit money into a traditional IRA for the year you turn 70½ or later, forgetting to turn off automatic deposits or continuing to contribute past that age will also count as excess contributions. Roth IRAs have no age limits for contributions. What can you

April 3, 2017 No Comments

10 frequently asked questions about IRAs

1- When is my IRA contribution due? Your traditional and Roth IRA contribution must be made no later than April 18. If you make your contributions in year 2016, make sure your financial institution reports the deposit for year 2015. Your SEP IRA contribution for year 2015 isn’t due until you file your tax return (that could be as late as October 15 if you file an extension). 2- How much can I contribute to an IRA? The IRS may annually adjust contribution maximums. 3- How do I report my Roth IRA contributions? Roth IRA contributions are not tax reportable nor are they deductible from your income. Your financial institution will report the contribution to the IRS on form 5498 in late May. However, you must report a Roth IRA conversion on your 1040 form (using information provided to you on the 1099-R form). Keep in mind, you’ll owe taxes on the taxable part of the Roth IRA conversion in the year you make the conversion. 4- How do I report my deductible traditional IRA contribution? You report your deductible IRA contribution on your personal tax return 1040. 5- Why does my tax professional insist my traditional IRA contribution was

February 2, 2016 No Comments