Where Will Your Windfall Go?

By: David Smyth, March 19, 2018

Happy March Madness everyone! Are your brackets as busted as mine is? Seems like March Madness always lives up to its name. 
 
In addition to college hoops and St. Patty's Day (how did you celebrate?), this is also the time of year when our office has just gotten your final tax documents, and we are in the process of sending those out. In the coming weeks and months, many of you will be receiving a financial windfall. What windfall, you're wondering? Well, you might have a few more dollars in your bank account soon, due to your state and federal tax returns. I know some of you have already spent your refunds, whether on spring break, a summer vacation, or a latte a day for the year. 
 
I also know that all of those things are fun and tempting, but I want to remind you to consider funding either a Roth IRA, traditional IRA or another savings vehicle for 2017 or '18. For IRAs of any type, you can contribute up to $5,500 per year, and once you hit the festive age of 50, you can contribute an extra grand each year under the catch-up provision. So, if you're 59 and were born in '59, that means you can contribute $5,500 - nope! - $6,500! Just making sure you're paying attention. 
 
Speaking of turning 59, all of you should consider that once you reach 59.5, you can, without penalty, pull funds tax-free from your Roth IRA (after the five-year holding period). You can also pull funds without penalty from your traditional IRA, with the caveat that you'll have to pay ordinary federal and state income tax, as those withdrawals are deemed ordinary income. 
 
Why is this important? Every year we see a number of client families still working at 59 or 60 who qualify and could contribute to a Roth IRA, who are instead putting their funds toward savings for eventual use in retirement. From my perspective, if you have a proper emergency fund in place, I see nothing wrong with a 60-year-old couple maxing out a Roth. Even if the funds are conservatively invested so they could be liquid if an emergency did happen, the funds are working for you in a tax-free environment. 
 
Now, for many of you, your combined household income prohibits you from participating in a Roth. That doesn't mean you can't save those dollars in an investment account that we could earmark for whatever goal you have. The point is that, at the end of the day, we want to make sure your money is working as hard for you as you worked to earn it. 
 
On that note, here's to Louisville - no wait, strike that. Here's to the Cats - nope, strike that. How 'bout the Cincinnati Bearcats? Hoosiers? Cavaliers? Nope, definitely strike that! Ah, well, you get the point. I'm rooting for all of your teams, because as Michael Jordan may or may not have said, "Republicans buy shoes too."

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