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For years I’ve heard countless reasons why a Roth IRA is better than a traditional IRA or vice versa. The truth is, it all depends on your situation. But with all the “noise” out there, it can be difficult to understand the differences between the two and remember the value each can provide.

So, grab your #2 pencils because we’re having a pop quiz today! Let’s test your knowledge on IRA’s vs Roth IRA’s.

Questions

1.  Frank is an engineer who recently retired from his long time career at a software company. After he retired he continued to work part-time at a local hardware store. Frank still has a 401k from his previous job as an engineer at the software company and just turned 70. While Frank is at work at the hardware store he gets a call from his wife Maria. She tells him that she received a letter in the mail and needs to take start taking his RMD (required minimum distribution) this month. When does Frank need to take his RMD?

  1. Frank needs to call the company who holds his 401k and start taking his RMD immediately.
  2. Frank should always listen to his wife Maria.
  3. Although he is retired, Frank doesn’t need to take an RMD because he still holds a job at the local hardware store.
  4. Frank does not need to take an RMD because he is only 70 years old.

2.  Roth IRA: Roth contributions, not earnings, can be withdrawn penalty and
tax free any time, even before age 59 ½.

  1. True
  2. False

3.  David and Ashley are newlyweds and are starting to plan for retirement. David, without Ashley knowing, wants to open an IRA. Between the two of them they make a total of $160,000 per year in income. David is supposed to be getting a big bump in his salary. With his new salary, David and Ashley will be making over $200,000 a year. Given the information, David should open a Roth IRA.

  1. True
  2. False

Answers

1.  B & D: First off, Frank should always listen to his wife Maria. That’s just a given. But the real answer is D. Frank does not need to take an RMD because he is only 70 years old. With a traditional IRA you must begin to take RMD’s by April 1 of the year following the year you reach age 70 ½.

2.  True: One of the benefits of a Roth IRA is that contributions can be withdrawn penalty and tax free any time before 59 ½. But the distributions must be taken no earlier than five calendar years after you fund your first Roth IRA.

3. False: Married couples filing jointly must have a modified Adjusted Gross Income of less than $194,000 in 2016 in order to contribute to a Roth IRA. David should seek professional help from a financial advisor to see if there are better options.


So how did you do? 2 out of 3? 3 out of 3? Send me an email back and let me know how you scored!

Remember folks, these are the rules as of now and for this year. These can change at any time so before you decide to make any money-moves, give me a call first and let’s discuss your options. Who knows there may be even a better strategy for you and your retirement?

I can’t wait to hear how you scored! Talk to you soon!

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