MONEY MATTERS

Did you make your contribution?

or

The 2021 tax deadline is upon us. Along with paying additional taxes, something else often is missed more than it should be, and that is contributing to your IRA or Roth. Being that I was a professional golfer, I like to compare a lot of things to golf. Missing an IRA/Roth contribution is like missing a 1-foot putt in golf. There could be a valid reason for not making a contribution, such as no earned income, but for most people, it’s an unforced error if you don’t do it. These vehicles by design are as tax efficient as any investment vehicle. Some argue that you can’t get a better deal than the Roth, as it grows tax-free and you can pull the money out tax-free. The IRA isn’t quite as tax friendly, but the ability to invest money in a vehicle that allows tax deferral for many years presents a compelling nod.

I’ve written about compounding interest before and will not get into the weeds with it in this article other than to say these vehicles give you an edge on compounding. The reason why is due to the IRA/Roth “shell” that keeps you from having to pay incremental taxes on dividends, capital gains, etc., until you withdraw the money (IRAs are taxed as ordinary income at withdrawal). This is a huge advantage given to you by Uncle Sam, so for most people, it is a great place to tax efficiently compound wealth.

The ability to donate to charity in the form of a Qualified Charitable Distribution and defer gains at

MONEY passing for several more years adds to the benefits of IRAs and Roths. In certain cases, MATTERS these accounts may give you asset/creditor protection, too. For a QCD, beginning at age 70-1/2, you can donate up to $100,000 per year from your IRA to a qualified charity, and it qualify as a QCD. Upon your passing, your heirs would have 10 years before the IRS forces all the money from the IRA/Roth shell. A few years ago, you could stretch these distributions out over the course of the beneficiary’s lifetime, but in most cases today, that is no longer possible. The 10-year rule is still a

Lee Williams good deal and offers a small edge on the compounding upon passing. In this article, I’m just scratching the surface on IRAs/Roths. Utilizing a 401k, 457, 403(b), etc., also could offer great tax advantages that parallel the points I hit on earlier. As always, I encourage you to seek the advice of your trusted financial advisor and tax professional to determine what’s best for you and your family’s long term goals. Lee Williams offers products and services using the following business names: Nowlin and Associates – insurance and financial services | Ameritas Investment Company, LLC (AIC), Member FINRA/SIPC – securities and investments | The Ascent Group, LLC – investment advisory services. AIC is not affiliated with Nowlin and Associates or The Ascent Group, LLC.

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