| If you thought investing in a qualified retirement plan was complicated, just wait until the time comes when you have to start taking money out of that plan.
There are a variety of options when it comes to retirement plans, and each comes with its own tax advantages that can help investors save for those Golden Years.
There are 401(k) plans, traditional individual retirement accounts, Roth IRAs, SEP IRAs, Simple IRAs, Simple 401(k) plans and Solo 401(k) plans, to name a few.
Many financial experts say that if you can meet eligibility requirements, such as earned income, it makes financial sense to contribute to both a Roth IRA and a traditional IRA.
In many cases, a Roth IRA can be a better choice than a 401(k) retirement plan, as it offers more investment options and greater tax benefits. It may be especially useful if you think you'll be in a higher tax bracket later on.
Now, let's discuss when the time comes that you have to start taking the money out.
You generally have to start taking withdrawals (known as a required minimum distribution) from your IRA, Simple IRA, SEP IRA or retirement plan account when you reach age 72.
That RMD rule does not apply to Roth IRAs while the owner is alive. Those rules do change, however, once the account holder dies.
Confused? CNBC reporter Greg Iacurci explains: A beneficiary who inherits a Roth IRA generally must withdraw money within a certain amount of time.
Generally, Iacurci reports, heirs must empty the Roth IRA of all funds within 10 years of the original owner's death. But the rules vary depending on the person's relation to the decedent and the year in which they died.
Previously, heirs could "stretch" Roth IRA withdrawals over their lifetimes. But, the stretch rule no longer exists. A grandchild, for example, could pull money out over decades; depending on investment growth, the account might never be emptied but instead keep accumulating wealth free of taxes.
The new rules apply to Roth IRAs inherited in 2020 or later. The old "stretch" rules still apply to earlier inheritances, and to some remaining beneficiary types, as explained further below.
It's clear that retirement planning is complicated. It's always a good idea to consult with a financial expert to figure out the plan that makes the most sense for you and your family.
For more advice to help you make smart financial decisions, check out CNBC's Financial Advisor Hub and Personal Finance section. To listen to the latest edition of the PF team's weekly Twitter Space, "This Week, Your Wallet," click here. |
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