Roth IRA

Helping Young Adults With Retirement Investing

I recently read that the average age of a client that works with a financial advisor is 62 years old. That led me to ponder one of biggest dilemmas that investors face in life. When we are young, we lack money and experience. Yet by the time we have accumulated enough money and experience, we are short on time.

As 20th century Irish playwright George Bernard Shaw once quipped, “Youth is the most beautiful thing in this world--and what a pity that it has to be wasted on children!”

Saving Too Much in a Retirement Account is no Laffer Matter?

In the past few weeks, some politicians have created quite a buzz with proposals designed to increase taxes on the rich and redistribute those dollars to the less affluent masses. One of the ideas that has received quite a bit of publicity is raising the top marginal income tax rate from its current 37% to as much as 70% on high income recipients.

Almost certainly, this and other tax proposals will receive increasing attention as the campaigns for the 2020 Presidential Election shift into gear. As talk of raising income tax rates increases, you may also hear about economist Arthur Laffer, or more specifically, his Laffer curve illustration. Laffer is a “Supply Side” economist that suggests that there is an optimal point of taxation, that once exceeded, results in less taxes being collected due to the disincentive of working more to earn less.

I’m no economist, but a financial planning issue I recently helped a client navigate may demonstrate that investing in your retirement account is not a Laffer matter.

The issue in question is for a retirement saver that has a high-end problem, too much money in their retirement accounts. How can that be, you may ask?

Roth IRA Tips, Back Doors, and Key

It seems that all we have been doing for the past few months is talking about taxes. The Tax Reform & Job Act did, in fact, give us much to talk about. At one point, it appeared that the bill was going to do away, or significantly reduce, pre-tax savings opportunities currently available to eligible retirement plan participants.

The talk was that after-tax contributions would largely replace pre-tax contributions in 401(k)s, 403(b)s, and other defined contribution plans. In other words, they would have forced everyone into Roth IRA type of arrangements, where you don’t get the near-term incentive of saving on taxes, but the earnings would be tax-free. Fortunately, taxpayers retained the incentives and flexibility to decide for ourselves between pre-tax accounts that defer income taxes or post-tax alternatives that grow tax-free. With both alternatives still available, a common question remains.

Should I do a Roth IRA?