Individual Retirement Accounts

While I always make a big deal about participating in employer-sponsored 401k and/or 403b plans, I don’t often make much of Individual Retirement Accounts, or IRAs.  An IRA is a privately held account not linked to employment, and can serve as an additional tool for retirement planning.  IRAs are highly worthwhile if your income allows for establishment of a Roth IRA.   A Roth IRA is not funded with pre-tax dollars the way a 401k is, but the distributions and earnings ultimately withdrawn are not taxed.  That is a powerful advantage.  Tax free income is a beautiful thing.  For that reason, anyone eligible for participating in a Roth IRA absolutely should.  There are income limits on earnings: for 2015, a single filer earning over $131,000 or joint filers earning over $193,000 exceed eligibility for a Roth.

Roth IRA contributions are not tax deductible, so it is funded with after-tax dollars. Still, the back-end benefit of a tax free withdrawal makes it a highly worthwhile tool in retirement planning.

–Tim Shields, UBS

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