The Retirement Blueprint Starts with Saving

Just like no Italian dish is complete without pasta, no retirement plan works without savings. It’s the base of everything. Joe and Big Al emphasized the importance of having a financial blueprint, a personalized guide you can use to see if your current strategy matches your long-term goals. It’s a free tool they recommend to get started—plug in your numbers and get a roadmap.

Understanding Defined Contribution Plans

You’ve likely heard of 401(k), 403(b), or 457 plans. These are defined contribution plans employer-sponsored retirement accounts where you choose how much to save, and the final benefit depends on your contributions and investment returns.

In 2024, you can contribute up to $23,000 to these plans or $30,500 if you’re over 50. Many employers match 4-6% of your salary, so at the very least, you should contribute enough to grab that free money.

If you work in schools, hospitals, or other public service roles, you may be eligible for both a 403(b) and a 457. That’s a huge advantage for supercharging retirement savings.

The Power of IRAs and Roth IRAs

For more flexibility, IRAs offer tax-deferred (Traditional IRA) or tax-free (Roth IRA) growth. You can contribute up to $7,000 annually—or $8,000 if you’re over 50. Roth IRAs are subject to income limits ($146,000 for singles and $230,000 for couples), but higher earners can still access them through a “backdoor Roth IRA.”

Spousal IRAs let non-working spouses save for retirement, and even minors with earned income can open an IRA starting them on the financial journey early.

Defined Benefit Plans: Old School, Still Powerful

While less common today, defined benefit plans (like traditional pensions and cash balance plans) still exist and offer guaranteed monthly income in retirement. They’re typically funded by the employer, with distributions taxed as ordinary income.

These plans focus on what you’ll receive rather than what you contribute unlike 401(k)s where the outcome depends on market performance.

Retirement Options for Entrepreneurs

If you’re self-employed, you’re not left out. Solo 401(k) plans allow you to contribute both as the employee and the employer, with a 2024 cap of $76,500 (if over 50).

SEP IRAs, funded by employers only, allow contributions up to $69,000 and they can be set up retroactively. SIMPLE IRAs are geared toward small businesses with employees, offering easier setup and lower contribution limits.

And since 2023, some of these plans even allow Roth contributions for those seeking tax-free growth.

Making the Most of Equity Compensation

Almost half of S&P 500 companies offer Employee Stock Purchase Plans (ESPPs), letting workers buy shares at up to a 15% discount. That discount is taxed as ordinary income, but it’s still a great perk especially if your company’s stock is on the rise.

Restricted Stock Units (RSUs) and stock options offer even more potential, but they also carry risks. If your compensation is heavily tied to your company’s stock, make sure to diversify. Otherwise, you could end up with too many eggs in one basket.

Evaluating Job Offers with ESPPs

A listener named Jill asked if it’s worth taking a lower-paying job with strong ESPP benefits. My advice? Look beyond just salary. If the company has growth potential and the stock benefit is strong, it could be worth the trade-off. But don’t base the decision on stock perks alone—consider the whole compensation package and your career goals.

S-Corp Owners and Retirement Contributions

Kyle from Seattle asked about retirement plan contributions as an S-Corp owner with no wages. Big Al made it clear: you need earned wages to contribute. Distributions don’t count. So Kyle would need to restructure how he pays himself if he wants to fund a retirement plan.

The Bottom Line

Retirement planning isn’t just about maxing out an account. It’s about understanding your options, using the tools available to you, and balancing growth with tax efficiency. Whether you’re a full-time employee, self-employed, or somewhere in between, there’s a recipe for your financial freedom. Start by saving, diversify your strategy, and stay informed as the rules evolve.

Intended for educational purposes only. Opinions expressed are not intended as investment advice or to predict future performance. Past performance does not guarantee future results. Neither the information presented, nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. Consult your financial professional before making any investment decisions. Opinions expressed are subject to change without notice.

IMPORTANT DISCLOSURES:

• Investment Advisory and Financial Planning Services are offered through Pure Financial Advisors, LLC. A Registered Investment Advisor.

• Pure Financial Advisors, LLC. does not offer tax or legal advice. Consult with a tax advisor or attorney regarding specific situations.

• Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.

• Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.

• All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy.

• Intended for educational purposes only and are not intended as individualized advice or a guarantee that you will achieve a desired result. Before implementing any strategies discussed you should consult your tax and financial advisors.

The post Your Retirement Recipe: Savings, Plans, and Financial Freedom Tools appeared first on ROI TV.

If you’ve ever wondered about Roth IRA withdrawal rules, the best way to manage stock holdings, or how to avoid costly tax missteps, this article is for you.

1. Funding Early Retirement Before Age 59½

Peter Lemon asked how to cover a few “gap years” before age 59½ without triggering penalties on retirement account withdrawals. He considered using Roth IRA contributions, which can be withdrawn tax- and penalty-free at any time. But he was unsure how that applied to dollars rolled over from a 401(k).

Julie clarified that even after a rollover, Roth contributions retain their original basis and are still eligible for penalty-free withdrawals. However, earnings on those contributions are subject to the five-year rule or age 59½, whichever comes later.

Joe and Big Al cautioned against tapping Roth IRAs too early, emphasizing that preserving tax-free compounding is often worth the wait. Alternatives like the IRS 72(t) election—which allows for penalty-free withdrawals if you take equal periodic payments for five years or until age 59½—were also discussed.

2. Paying Roth Conversion Taxes from Retirement Accounts: A Costly Move

One common mistake? Using retirement funds to pay the taxes on Roth conversions. Big Al illustrated this with a cautionary tale: a couple withdrew $500,000 to pay off a mortgage, leading to a $200,000 tax bill and additional stress.

Whenever possible, taxes on Roth conversions should be paid from non-retirement (non-qualified) assets. Otherwise, you risk reducing your long-term nest egg and missing out on future tax-free growth.

3. Backdoor Roth Contributions vs. Brokerage Accounts

David from Cincinnati asked whether to prioritize backdoor Roth contributions or build liquidity through a taxable brokerage account. With $630,000 in assets at age 30, he’s in a strong position either way.

Joe pushed for maximizing Roth contributions to take advantage of tax-free compounding. Big Al made a case for building up liquidity, especially with kids and potential home improvements on the horizon.

The takeaway? It depends on your goals. If you’re laser-focused on retirement, Roth wins. If you value flexibility, taxable accounts give you more freedom.

4. Consolidating Individual Stocks vs. Index Funds

Another listener asked whether they should roll 20 individual stock positions into an S&P 500 ETF. Big Al noted that an index fund offers broad diversification across 500 companies—compared to the limited scope of 20 individual stocks.

Joe added that selling stocks may trigger capital gains taxes, so investors should evaluate both the tax implications and their confidence in the individual holdings.

5. Understanding the Roth IRA Five-Year Rule

A common point of confusion: does the five-year rule apply to non-taxable Roth conversions, like those from after-tax 401(k) contributions?

Big Al confirmed it does. All Roth conversions—taxable or not—are subject to the five-year waiting period before the money can be withdrawn penalty-free. That’s in addition to the rules around age 59½ and original contribution tracking.

6. Home Office Deduction After the Tax Cuts and Jobs Act

Big Al clarified that the home office deduction is now only available to self-employed individuals. Employees can no longer claim it on their federal returns. However, some states still allow it—so it pays to check local tax laws.

7. Balancing Pretax and Roth 401(k) Contributions

A participant asked if contributing 15% pretax and 5% Roth is a smart strategy. Big Al said it depends on expected tax rates in retirement.

Pretax contributions lower your taxable income today but are taxed later. Roth contributions offer no upfront break but provide tax-free withdrawals. Balancing the two offers flexibility, especially if you’re unsure where future tax rates will land.

8. Can You Use Roth Dollars to Pay for Roth Conversion Taxes?

Michelle wondered if it’s okay to pay Roth conversion taxes using Roth IRA dollars. Joe and Big Al said it’s technically allowed—but not ideal.

Why? Because using Roth funds today means giving up future tax-free growth. If other non-qualified money is available, it should be used instead.

Intended for educational purposes only. Opinions expressed are not intended as investment advice or to predict future performance. Past performance does not guarantee future results. Neither the information presented, nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. Consult your financial professional before making any investment decisions. Opinions expressed are subject to change without notice.

IMPORTANT DISCLOSURES:

• Investment Advisory and Financial Planning Services are offered through Pure Financial Advisors, LLC. A Registered Investment Advisor.

• Pure Financial Advisors, LLC. does not offer tax or legal advice. Consult with a tax advisor or attorney regarding specific situations.

• Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.

• Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.

• All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy.

• Intended for educational purposes only and are not intended as individualized advice or a guarantee that you will achieve a desired result. Before implementing any strategies discussed you should consult your tax and financial advisors.

The post Mastering Roth IRA Rules and Retirement Tax Strategies appeared first on ROI TV.

Introduction to Roth IRAs

Roth Individual Retirement Accounts (IRAs) offer a powerful avenue for tax-free growth and withdrawals in retirement. Unlike traditional IRAs, contributions to Roth IRAs are made with after-tax dollars, allowing your investments to grow tax-free and enabling tax-free withdrawals during retirement. Additionally, Roth IRAs are not subject to required minimum distributions (RMDs), providing greater flexibility in retirement planning.

Contribution Limits and Income Parameters for 2025

For the tax year 2025, the contribution limits for Roth IRAs are as follows:

• Individuals under age 50: Up to $7,000.
• Individuals aged 50 and older: Up to $8,000, which includes a $1,000 catch-up contribution.

Eligibility to contribute to a Roth IRA is determined by your modified adjusted gross income (MAGI):

• Single Filers:
  • Full contribution allowed if MAGI is less than $150,000.
  • Partial contributions permitted if MAGI is between $150,000 and $165,000.
  • No contribution allowed if MAGI exceeds $165,000.
• Married Filing Jointly:
  • Full contribution allowed if combined MAGI is less than $236,000.
  • Partial contributions permitted if MAGI is between $236,000 and $246,000.
  • No contribution allowed if MAGI exceeds $246,000.

These thresholds have been adjusted for inflation from previous years.

irs.gov

Maximizing Contributions

To fully leverage the benefits of a Roth IRA:

1. Assess Eligibility: Determine your MAGI to confirm your eligibility for full or partial contributions.
2. Contribute Early: Making contributions early in the year allows more time for potential growth.
3. Utilize Catch-Up Contributions: If you’re aged 50 or older, take advantage of the additional $1,000 contribution limit.

Roth Conversions: A Strategic Approach

If your income exceeds the Roth IRA contribution limits, or if you have significant assets in traditional retirement accounts, a Roth conversion may be a beneficial strategy. This involves transferring funds from a traditional IRA or 401(k) into a Roth IRA, paying taxes on the converted amount now to enjoy tax-free withdrawals later.

Situations Favorable for Roth Conversions:

• Lower Income Years: Converting during years when your income is lower can minimize the tax impact.
• Market Downturns: Converting investments when their value has decreased can result in a lower tax bill, allowing for potential tax-free growth when the market recovers.
• Anticipation of Higher Future Taxes: If you expect to be in a higher tax bracket in the future, paying taxes now at a lower rate can be advantageous.

Considerations and Potential Pitfalls

While Roth IRAs offer numerous benefits, it’s essential to be aware of potential pitfalls:

• Tax Implications: Conversions increase your taxable income for the year, which could push you into a higher tax bracket or affect eligibility for certain tax credits.
• Medicare Premiums: Higher taxable income can increase Medicare Part B and D premiums.
• Pro-Rata Rule: If you have both pre-tax and after-tax contributions in traditional IRAs, the IRS requires that any conversion include a proportional amount of both, which can complicate the tax implications.

Inheritance Considerations

Roth IRAs can be a valuable tool for estate planning. Beneficiaries can inherit Roth IRAs tax-free, though non-spouse beneficiaries are required to fully distribute the account within 10 years of the original owner’s death. This allows for continued tax-free growth during that period.

Backdoor Roth IRAs

For high-income earners who exceed the Roth IRA income limits, a backdoor Roth IRA provides a workaround. This involves making a non-deductible contribution to a traditional IRA and then converting it to a Roth IRA. It’s crucial to understand the pro-rata rule and potential tax implications before pursuing this strategy.

Conclusion

Roth IRAs offer significant advantages for tax-free income in retirement. By understanding the contribution limits, income thresholds, and strategic conversion methods, you can effectively incorporate Roth IRAs into your retirement planning to maximize tax efficiency and financial flexibility.

Intended for educational purposes only. Opinions expressed are not intended as investment advice or to predict future performance. Past performance does not guarantee future results. Neither the information presented, nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. Consult your financial professional before making any investment decisions. Opinions expressed are subject to change without notice.

IMPORTANT DISCLOSURES:

• Investment Advisory and Financial Planning Services are offered through Pure Financial Advisors, LLC. A Registered Investment Advisor.

• Pure Financial Advisors, LLC. does not offer tax or legal advice. Consult with a tax advisor or attorney regarding specific situations.

• Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.

• Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.

• All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy.

• Intended for educational purposes only and are not intended as individualized advice or a guarantee that you will achieve a desired result. Before implementing any strategies discussed you should consult your tax and financial advisors.

The post Rock Your Retirement with a Roth IRA appeared first on ROI TV.