Making Sense Of Retiree Asset Location

Making Sense Of Retiree Asset Location


Individual Retirement Accounts, or IRAs, are often talked about as a savings vehicle for retirement. And while they excel in that capacity, many retirees wonder if IRAs are the best type of account for a strong investment strategy while in retirement as well. 

IRAs can offer retirees many benefits, but there are also some consequences and restrictions to consider before you invest in them during your golden years. Today, we are going to look at both the pros and cons of investing in a Traditional IRA and a Roth IRA during retirement. 

Let’s dive in!

In favor…

IRAs may have been a valuable part of your investment strategy for many years and they can continue to provide you with benefits when you retire, especially if you are still working part-time. Working retirees often want to keep investing and growing their nest egg as long as possible and putting that money in an IRA is a good solution. 

For many working retirees, investing in a Roth IRA is the best option. While contributions are made with after tax dollars, all growth is tax-free. A Roth IRA is also one of the only accounts that do not come with the IRS stipulated Required Minimum Distributions (RMDs). RMDs are yearly withdrawals that need to be taken from your Traditional IRA account as soon as your turn 70 ½.  If you forget to take your RMDs or fail to take enough out, you will face a 50% penalty on the money, which can really hurt your tax bill.

But since a Roth IRA does not require RMDs, you are able to invest the money and continue to grow your retirement savings. With the increasing cost of living and medical expenses, having enough money to last through retirement is a real concern for many people, so being able to grow the savings tax free can help. In fact, a Roth IRA has no age distribution requirements and can be contributed to as long as the account owner has earned income. This provides the flexibility and freedom to both use and save your money as you wish

By adding more money into your account, you are also increasing the size of the inheritance you will be able to pass down to future generations. Thinking about your Roth IRA as part of your estate plan is a good way to maximize your assets. 

Once you turn 50, the IRS allows you to participate in catch-up contributions, meaning that you are able to put in an extra $1,000 per year into your IRA. For 2019, the IRA contribution limit is $6,000. Taking advantage of the catch-up contributions, you could put $7,000 into your Traditional or Roth IRA this year. 


It is important to consider a few Traditional IRA drawbacks. You are able to make both pre-tax and after tax contributions to your Traditional IRA until you turn 70 ½. After you reach that age threshold, you are unable to make any contributions no matter your income level, filing status, or any other factor. The reason is because that is when RMDs will come into effect. 

Since you did not pay taxes on the money you contributed, you will need to pay taxes on the distribution.  That isn’t always cheap as the money is taxed at your ordinary-income rate. RMDs are calculated by the amount of money in the account at December 31 of the previous year divided by your life expectancy taken from approved IRS tables. By contributing more money to your Traditional IRA when you first retire, you could increase the amount of your RMDs, pushing you into a higher tax bracket. 

It is always important to employ tax-friendly strategies into your financial plan, but it becomes especially important in retirement. A strategy to carefully consider is converting Traditional IRA funds to a Roth IRA account in any year that you are in an abnormally low tax bracket.  With changing cash flow, financial goals, and lifestyle goals, being tax-efficient with your investments needs to be a top priority. 

It is also important to note the contribution limits for IRAs. While you can, of course, contribute to a Roth IRA at any time and can contribute to your Traditional IRA until you turn 70 ½, the contribution limits are pretty low ($6,000 or $7,000 if over 50 in 2019). Unlike a 401(k) contribution limit of $18,000, the IRA limit is less than half of that. So if you are looking to invest more money than that, perhaps you should explore alternate strategies. 

The Bottom Line

IRAs can be a wonderful savings tool. There are many tax and wealth-building benefits that they offer which can be a great addition to your retirement investing practices. Remember that there are limits to how much you can invest in an IRA, and take some time to evaluate the right IRA for you in retirement. 

If you are looking to add a new dimension to your retirement investing strategy, give us a call. We would love to help you live the retirement you want and deserve. 

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