Today’s episode addresses five reasons why a Roth IRA is one of David KcKnight’s favorite tax-free investments. 

Unlike other retirement accounts, Roth IRAs give you 100% liquidity on all contributions.

While David isn’t necessarily suggesting that you use your Roth IRA as an emergency fund, it’s nice to know that you won’t have to wait until age 59 ½ to be able to access those funds.

If you happen to take out your Roth IRA contributions, you can put that money back within 60 days as long as your Roth IRA was not involved in a rollover during the 12 months preceding the date of distribution.

Tax regrowth is a second reason why David is an advocate for Roth IRAs.

For David, going for a Roth IRA could be the right move if you believe that your tax bracket in retirement is likely to be higher than it is today.

The Penn Wharton School of Business recently said that if the U.S. doesn’t write its fiscal ship of state by 2040, no combination of raising taxes or reducing spending will prevent the financial collapse of the country.

Some experts are even predicting that tax rates could have to double in order to honor the nation’s massive financial obligations.

A third huge benefit of a Roth IRA is that whatever money you don’t spend during your lifetime passes to your heirs, 100% tax-free –though they’ll have to liquidate those dollars within 10 years.

Thinking about Roth IRAs? Just know that distributions from Roth IRAs don’t count as provisional income.

In other words, they don’t count against the thresholds that cause Social Security taxation.

David explains what can cause up to 85% of your Social Security to become taxable at your highest marginal tax bracket – leaving a huge hole in your Social Security.

David has done the math hundreds of times: when you pay tax on your Social Security, you run out of money five to seven years faster than people who don’t pay tax on their Social Security.

Finally, Roth IRAs are a tool worth leveraging for the fact that Roth IRA distributions don’t count as income-related monthly adjustment amount (also known as IRMAA). 

That translates to distributions from your Roth IRAs not counting against the thresholds that cause your Medicare Part B and Part D premiums to go up.

David sees the Roth IRA as one of the crown jewels in the IRS tax code.

 

 

Mentioned in this episode:

David’s national bestselling book: The Guru Gap: How America’s Financial Gurus Are Leading You Astray, and How to Get Back on Track

DavidMcKnight.com

DavidMcKnightBooks.com

PowerOfZero.com (free video series)

@mcknightandco on Twitter 

@davidcmcknight on Instagram

David McKnight on YouTube

Get David's Tax-free Tool Kit at taxfreetoolkit.com

Penn Wharton