IRA Planning Tips

3 Essential IRA Strategies To Lower Your Tax Bill

We all want to maximize our savings and minimize the tax impact in retirement. With the right planning, you can do just that. Below are three IRA strategies, that when implemented effectively, will have you paying the most efficient tax rate while also increasing your retirement savings.


There are many benefits to Roth IRAs which include:

  • Tax Free Withdrawals. Qualified distributions, and tax deferred earnings, can be withdrawn tax free — versus a Traditional IRA, where distributions are taxed at ordinary income tax rates.
  • No Age Limit. You are not required to begin distributions at age 70½ like you are with Traditional IRAs.
  • No Required Minimum Distributions (RMDs). Not having RMDs allows you to take out the exact amount you need, leaving the remaining money in the Roth IRA to continue growing tax-free.

Deciding to complete a Roth conversion can be a complex and difficult decision to make. There are so many different variables to consider, and also a large amount of taxes due if you decide to pull the trigger.  Roth conversions can be more beneficial when any of the following apply:

  • You Are Paying Taxes On The Roth Conversion With Non-Retirement Funds. You want to leave as much money as possible inside of your IRA and retirement funds to grow either tax free, or tax deferred.
  • You Have Many Years Before Retirement. Over the years your money will continue to grow, and if you chose to do a Roth conversion, you will be able to withdraw your Roth IRA funds tax free during retirement. Over time, the future tax benefit of being able to withdraw your retirement savings tax free will be greater than the current benefit of deferring tax on traditional IRA contributions.
  • You Would Like To Leave A Tax-Free Inheritance To Your Heirs, And You Don’t Need Your IRA Funds During Retirement. Funds in traditional IRAs that are passed to beneficiaries usually must follow the RMD rules, and the heir must pay taxes on all RMDs received. In addition, during your lifetime, you are taking out RMDs from the traditional IRA, lowering the asset value. If you don’t need the funds in your traditional IRA during retirement, and you convert to a Roth, the funds can grow untouched throughout your lifetime. Inherited funds from a Roth IRA can be distributed to your beneficiaries’ tax free, and have potentially many more years to grow and be passed to multiple generations tax free.
  • You Are Expecting Your Future Tax Rate To Increase. For example, you are planning to retire to a state with a higher income tax rate than your current resident state (i.e. retiring in California). During retirement when your tax rate has increased, you will be able to withdraw your Roth IRA funds tax free.


If you have self-employment income, you can contribute to a SEP IRA. For 2017, you can contribute 20% of your net self-employment income, up to $54,000 to a SEP IRA. In addition, you can take a deduction for your SEP IRA contribution on your individual tax return.

If you are working for an employer and contributing to their 401(k) plan, but also doing consulting work and generating self-employment income on the side, you can still contribute to a SEP IRA. For example, if you are maxing out your 401(k) contribution at $18,000, you can still contribute 20% of your net self-employment earning up to a total of $36,000 ($54,000 – $18,000) to your SEP IRA for the 2017 year.


Once you turn age 70 ½, you must begin taking distributions from your Traditional IRAs by December 31st of each year. For the first RMD, the IRS allows you to delay distribution to April 1st. Having two RMDs in the same year can have a material impact on your tax return, because RMDs are taxed as ordinary income. To avoid having both RMDs hit in the same year, take the first RMD by December 31st in the year you turn 70½, instead of waiting until April 1st of the following year. This spreads out the taxable impact of the RMDs, and will make your tax planning and tax payments more manageable.

If you are considering these IRA planning strategies, we will happily discuss scenarios and run models to show you how beneficial they may be. Individualized projections are a great way to reveal the impact to your tax and retirement plan.

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