I want to look at whether there should be a difference in strategy whether you have investments in a ROTH IRA or IRA. Firstly, what is a ROTH IRA and IRA and how they are set up:
IRA
IRA is paid mostly with pre-tax dollars and is tax-deferred. It has a withdrawal age of 59.5 and RMD of 72. If you withdraw prior to this age then you are taxed 10% as well as at your ordinary income level.
ROTH IRA
Roth IRA is paid after-tax dollars and can withdraw tax-free at 59.5 or when you have had the IRA for 5 years (so for example if you take an IRA at 58 you will need to take out at 63) also you don’t have a minimum age to withdraw.
Also who it is open to, an IRA can have a $6000 a year or a $7000 limit per year if you are over 50. You do have exceptions such as a first-time house, education, or medical similar rules apply for Roth IRA when withdrawing.
Although, an IRA is open to anyone to grow tax-deferred income.
A Roth IRA as of 2020 couples earning over $206,000.
With difference aside should you look at a different strategy?
The main difference is that one is paid after-tax dollars (Roth) and the other is pre-tax dollars meaning a Roth is not taxed on withdrawal if the conditions are met that are stated above, while an IRA is taxed.
One point to consider when you reach 59.5 is the tax bracket that you find yourself in, like those in the higher-end tax bracket with an IRA at 59.5–72 it will not favour you too kindly. It might be just as feasible considering this if you have accumulated vast amounts of wealth in an IRA.
The same cannot be said for Roth, so you don’t need to think about this as much. You have no RMD so unlike an IRA that will impose penalties if you don’t withdraw at 72 (or on April 1st after you turn 72) a ROTH IRA you can hold onto for longer tax-free.
With all that should you have a different investment strategy? It depends more on the stage of life you are in, the current assets you have and where do you think you are going to be in retirement for tax purposes.
Conclusion
Besides, the tax differences and RMD both are very similar, so I would set them accordingly to fit in with your overall portfolio of financial assets accordingly.
The type of plan that you use will depend on what assets you currently own and how much you want to maximise.
If you would like me to give you personal advice, please email me and I will talk through your options.
