An Individual Retirement Account (IRA) is a tax-advantaged account that can help you potentially build wealth for retirement more quickly when compared to a taxable account. There are two common types of IRAs — traditional and Roth.
Traditional or Roth IRA?
If you’re looking for an opportunity to save for retirement in a tax-advantaged way beyond a 401(k) plan or other tax-advantaged account, you may benefit from a traditional or Roth IRA.
Ultimately, your choice depends on things such as your age, current income, distribution goals and tax objectives. A Merrill Lynch Wealth Management Advisor can walk you through these considerations to help you decide which type may be right for you.
More ways to save for retirement
For more information about tax-advantaged ways to save for retirement, including defined contribution plans and IRAs, download the Saving for Retirement fact sheet. This fact sheet also provides information about other things you may want to consider, such as Health Savings Accounts and IRA catch-up contributions.
Things to consider:
- Do you want to take advantage of the benefits of tax-advantaged saving?
- Have you maxed out your contributions to a 401(k) and want to save more for retirement?
- Compared to now, do you think you’ll be in a higher or lower income tax bracket when you retire?
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You have choices about what to do with your 401(k) or other type of plan-sponsored accounts. Depending on your financial circumstances, needs, and goals, you may choose to roll over to an IRA or convert to a Roth IRA, roll over a 401(k) from a prior employer to a 401(k) at your new employer, take a distribution, or leave the account where it is. Each choice may offer different investments and services, fees and expenses, withdrawal options, required minimum distributions, tax treatment (particularly with reference to employer stock), and provide different protection from creditors and legal judgments. These are complex choices and should be considered with care.
1 Your contributions may be tax-deductible, depending on your tax-return filing status, your modified adjusted gross income and whether you or your spouse are eligible to participate in employer-sponsored retirement plans.
2 To be eligible to contribute to a Roth IRA, your Modified Adjusted Gross Income must be below specified limits.
3 Generally, for a distribution from a Roth IRA to be federal (and possibly state) income tax-free, it must be qualified. A qualified distribution from your Roth IRA may be made after a five-year period has been satisfied (this period begins January 1 of the tax year of the first contribution or the year of conversion to any Roth IRA) and you (i) are age 59½ or older, (ii) are disabled, or (iii) qualify for a special purpose distribution such as the purchase of a first home (lifetime limit of $10,000). In situations where the original account owner is deceased, distributions to the beneficiary are also considered a qualified distribution. If you receive a non-qualified distribution from your Roth IRA, the earnings portion of such distribution generally will be subject to ordinary income tax, plus a 10% early withdrawal additional tax if received before age 59½ unless an exception applies. A 10% early withdrawal additional tax may also be owed on converted Roth IRA principal withdrawn before the end of the five-year period. Although RMDs are not required for the original account owner, RMDs would apply to the inherited IRA account.
This material does not take into account a client’s particular investment objectives, financial situations or needs and is not intended as a recommendation, offer or solicitation for the purchase or sale of any security or investment strategy. Merrill offers a broad range of brokerage, investment advisory (including financial planning) and other services. There are important differences between brokerage and investment advisory services, including the type of advice and assistance provided, the fees charged, and the rights and obligations of the parties. It is important to understand the differences, particularly when determining which service or services to select. For more information about these services and their differences, speak with your Merrill Lynch financial advisor. Additional information is available in our Traditional IRA or Roth IRA Fact Sheet and Client Relationship Summary.
Merrill Lynch, Pierce, Fenner & Smith Incorporated (also referred to as “MLPF&S” or “Merrill”) makes available certain investment products sponsored, managed, distributed, or provided by companies that are affiliates of Bank of America Corporation (“BofA Corp.”). MLPF&S is a registered broker-dealer, registered investment adviser, Member SIPC and a wholly owned subsidiary of BofA Corp.