What You Need to Know About IRA and Roth IRA Contributions

You may be familiar with some of the basics of traditional IRA and Roth IRA retirement accounts and the differences between the two. Although there are many different rules and tricky little nuances that you might not know can open the door for more wealth-building opportunities or possibly be a cause for concern.

For instance, you may think you make too much money to contribute to a Roth IRA or that you can't because you have a 401(k) plan at work. Or maybe you're contributing to one of these types of accounts and taking tax deductions when you're not actually allowed to. Or even reporting contributions and withdrawals incorrectly on your tax returns. All of these issues are crucial to understand each year when using these retirement accounts to build wealth.

00:01:09
Hello everyone, and welcome to the Retired-ish Podcast. My name is Cameron Valadez. I am a practicing certified financial planner and enrolled agent. And today's episode is packed with information when it comes to taking advantage of your investments, your taxes, and retirement planning.

Many of you have or have at least heard of, likely, an IRA or a Roth IRA, which are extremely common savings vehicles when it comes to building wealth and saving for retirement. These types of accounts are so critical to your financial planning that I want to dedicate this episode to teaching you some of the small nuances and rules when it comes to funding these accounts via contributions.

0:01:55
If you aren't too familiar with the differences between these two types of accounts, no worries at all. Here's a little refresher.

IRAs, or what are technically known as traditional IRAs, are a pre-tax and tax-deferred retirement accounts that virtually anyone with earned income can contribute to. Pre-tax means that when you put the money in, you can typically get a tax deduction for it and you will pay taxes on that money later in life when you start withdrawing or distributing the money out.

Tax-deferred means that when you put the money in and invest it in something, the income or earnings that the investments inside may earn are not subject to tax each and every year. This gives you the power to have more dollars at work compounding for you each year. Again, you will pay taxes on the amounts that you withdraw later in life in retirement.

Now there are, of course, different rules that can change how and when the money in an IRA is taxed, which is what I will be getting to later in the episode.

Roth IRAs, on the other hand, are essentially the opposite. The money you contribute to a Roth IRA is taxed first. Then you use those after-tax dollars to contribute to the account. The money in a Roth IRA has the ability to grow tax-deferred, just like the traditional IRA. However, it also potentially grows tax-free, provided that you meet some basic rules. Then, when you take the money out later in retirement, it's all tax-free. The money you put in, the earnings, and again, as long as you meet the requirements, which we get into later, everything comes out tax-free and penalty-free.

And even though tax-free sounds absolutely amazing, which it is, Roth IRAs are very powerful. There is a time and place for each. There isn't one that's necessarily better than the other. And as you'll learn later in the episode, there will be certain instances where you may have to use one versus the other, depending on what you're trying to get done.

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So, not that a traditional IRA or a pre-tax IRA is better than a Roth, or a Roth is better than a pre-tax IRA. It's just going to depend on your situation. The tricky part about contributing money to these accounts is that you can't just start putting money into them willy-nilly. There are some rules to follow. These rules are super important for several reasons.

One is that if you go on contributing more than you're allowed to, you'll generally have to pull that money back out, in addition to anything that money might have earned while inside the account and invested, and you will likely pay some taxes and penalties. If you go on contributing more than you're allowed for years on end, then you can really find yourself in a complete mess.
Not to mention going back and having to potentially correct your tax returns from previous years, and paying a professional to help you do so. The point is that all of these issues can be avoided if you just understand the rules first.

Secondly, if you don't understand the rules, you may be foregoing some wealth-building opportunities that you can't necessarily get back. And this can be even worse than the previous issues that I mentioned.

For instance, if you thought you could not fund a Roth IRA because your brother-in-law, that you get financial advice from, told you that you couldn't, and you or your spouse missed ten years of contributing to a Roth IRA, this could mean tens or hundreds of thousands of dollars in tax-free money that you missed out on. You can't just go back and make up for those missed opportunities in those years that have already gone by. Obviously, if we can get better at understanding when we can take advantage of some of these benefits and contribute to these accounts, we won't miss these golden opportunities.

With that being said, let's get into some of the basic rules when it comes to contributing to each of these accounts. Then we will dive a little bit deeper into some of the financial planning and tax implications a little bit later.

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The first rule I want to discuss is also one of the most basic rules to understand, and that is the annual contribution limit for traditional IRAs and Roth IRAs. Contributions are when you decide to fund these accounts with your own money sitting in your bank account or somewhere else.

While there are other ways to fund these accounts, using maybe your other retirement accounts via doing a rollover, direct transfer, Roth conversion, etc., these rules that I'm going to be discussing only refer to contributions, so money that you're just taking out of your bank account and funding the Roth or the IRA with.

Each year, there is a set limit on how much an individual can contribute to an IRA or a Roth IRA. The limit is the same limit for each account and is per individual. For the year 2024, the annual contribution limit is $7,000 if you are under age 50 and $8,000 if you are over age 50.

The extra $1,000 for 2024 is what is called a "catch-up" contribution that allows those getting closer to their retirement years to add more to their accounts each year.

This limit is also aggregated, for lack of a better term. This means that you can only contribute $7,000 between the two account types. So, if you have an IRA and you have a Roth IRA, you can't contribute $7,000 to one and $7,000 to the other. It's $7,000 total between the two, however you choose. You can max out one or the other or do a combination of both up to that $7,000. You would do whatever is best for your specific plan.

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These limits have gradually increased over time, typically by around $500 or so each year, really not much. And actually, a new provision from recent retirement legislation will cause the "catch-up" contributions I mentioned for those age 50 and older to start increasing each year by the rate of inflation. So, instead of seeing that $500 increase or similar amount, we're going to start to see different amounts based on whatever inflation is. These are the limits, assuming you are eligible to even contribute to these types of accounts.

So, let's look at some of the eligibility requirements next. The first of these eligibility rules, let's call them, is that you can only contribute to these retirement accounts if you have what is called "earned income," and your contributions must be made in cash. And no, I don't mean that you literally have to have cold, hard cash in your hands to go deposit in an IRA somewhere. What I mean is that you essentially can't contribute property of some sort as a contribution to your IRA or your Roth IRA. It's got to be cash. But what you end up investing in once the cash is inside the IRA or the Roth IRA is a different story. But I digress.

It doesn't even matter where that cash comes from. Some really nice person can just hand you cash and you could technically put it in your IRA as long as you had enough earned income. It's funny because this stuff actually happens. You know, you see those commercials and videos on social media where there are some companies and really nice people out there where they just walk up to other random people and give them money for just being them or doing a really good deed.

If that was you, if you were one of those lucky people and you had some earned income, you could literally take that money that they just gave you and put it in your IRA or your Roth IRA.
Kind of cool.
Okay, so as I mentioned, earned income. What does that mean? Earned income for IRA contribution purposes includes things like your wages or salary commissions you might earn any tips that you might earn. And I should mention that you actually report on your tax return, by the way. I know there are some of you out there that keep your tips off the books, but just so you know, you could be missing out on some investing opportunities here.

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You got professional fees, bonuses, and net self-employment income. So if you're self-employed, that's your net income on your tax return after certain expenses and deductions and any other amounts received for maybe personal services. And another notable one I definitely want to mention is taxable alimony and separate maintenance payments stemming from a divorce. Those may be included as earned income as well.

This is for those of you who may have taxable alimony stemming from a divorce that was finalized pre-2019. So if your divorce decree was finalized after December 31st, 2018, your alimony is actually not taxable and therefore also not counted as earned income for IRA contribution purposes. But if your divorce decree was finalized before that date, again, the rules are different. Your alimony is taxable, and in that case, we actually can count that money as earned income, and you could use that as your qualifier, let's say, to contribute to an IRA or a Roth IRA.

Another notable exception is that if you receive non-taxable combat pay, this is actually considered earned income for IRA contribution purposes, even though it's not even taxable to begin with. So that's kind of nice.

Now, earned income does not include some other sources such as rental income, interest or dividends, or any amount received from maybe a pension or an annuity, or a deferred compensation plan.

0:11:58
So, yes, this includes things like Social Security benefits, unemployment compensation and workers comp as well. Those do not count as earned income. So, if you're in retirement and living off of Social Security and possibly a pension or retirement account withdrawals, you cannot continue to fund an IRA or a Roth IRA via contributions.

In addition, if you're only living off the income from, let's say, your rental properties, you won't be able to continue funding these retirement accounts via contributions. You can, however, still do what are called Roth conversions, as there is no earned income requirement for those.

Secondly, when it comes to earned income, you can only contribute up to the amount of your earned income subject to the maximum $7,000 limit or $8,000 if over age 50. And again, these are numbers for 2024. These will change and typically go up over time. This means that if your earned income is only $5,000 for the year, right, you had some part time job or you only worked a couple of months out of the year and you only earned $5,000. You can only contribute up to $5,000 in that case. You can't contribute up to the $7,000 or the $8,000 max.

Now, here's a little tip I want to remind everybody of, and that is what is called spousal contributions. These are exactly what the name implies. They are a contribution to your spouse's IRA or Roth IRA. When would somebody do this?

Well, let's say you have plenty of earned income, but your spouse does not have any earned income because maybe they're not working. Maybe they're retired already. You can actually contribute to your own account and to their account as long as you have enough earned income to cover both contribution amounts and assuming you file your taxes jointly.

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In this case, a couple over age 50 in 2024 could potentially fund a total of $16,000 into these retirement accounts. $8,000 for one spouse and $8,000 for the other spouse. In cases like this, contributing to these accounts for both of you can be one of the absolute lowest-hanging fruits for you to capitalize on in your financial planning. If you don't have enough cash flow to contribute $8,000 to one and $8,000 to the other, but maybe you have a brokerage account or a trust account, some other non-retirement account on the side with money in it. You can actually take the cash from there and use it to contribute to that Roth IRA or that regular IRA. There's no limit on where the money actually comes from.

Again, why would you do this? Well, if you have, let's say, some bonds in a brokerage account or a trust account, the dividends, the interest, and any potential capital gains if you sold one of those investments for more than you bought it for, those will all be taxed each and every year you incur them. So if you were to take some of that money and use it to fund, say, a Roth IRA, you're essentially moving money from one pocket in which the earnings are taxable to the other pocket where you can get the same stocks or bonds or whatever the case is, but enjoy tax-free growth. I mean, if you meet all the requirements, why wouldn't you do this? That's why I say this is low-hanging fruit. The sooner you start implementing strategies like this, the better.

When it comes to investing, time and compound interest are your best friends. So if these opportunities are out there and you're able to do them given your situation, you need to be capitalizing on these each and every year. Because if years go by and you miss these contributions, that's another $7,000 or $8,000 that you now cannot put into the IRA.

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And because these limits are rather low, you definitely want to be doing these things each and every year.

OK, now let's talk about another rule, and that is the annual deadline to make these contributions. When it comes to funding an IRA or Roth each year, you have until that year's tax filing deadline to make your contribution.

For example, you can make a contribution or multiple contributions at any time during the calendar year 2024 and still make a contribution that counts for 2024 up until the individual tax filing deadline, which would actually be April 15th or so in 2025. If you extend your tax return, it does not extend the time you have to contribute. So be careful here. The only IRA in which you can make a contribution up to the extension deadline is what is known as a SEP IRA. These are common IRAs that business owners may use. But again, that's beyond the scope of this episode.

So in this case, although you will be technically in the year 2025 in this example, and you would then be able to make a 2025 contribution, you can still dictate what year your contribution is actually for. So, in this case, let's say it's March 2025. You haven't funded your account for 2024 yet, and you want to contribute the full $7,000, and you want to contribute whatever the 2025 maximum amount is. You can actually do that. You can do both on the same day if you want to in two different transactions. Just be sure that when you do this, or if you do something similar to this, the custodian or the financial institution that holds your account knows your intentions. Make sure they, we say code it, so make sure they code it for the correct years.

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Also, in this particular example, you will want to have a good idea of whether or not you are eligible to make that contribution in 2025. We'll get into a couple more rules in a bit, but again, you may know that you're eligible to contribute in 2024 because you're in the new year. You already know what your income was the year before. However, in 2025, your income situation might change substantially, and you might not be allowed to make one of these contributions, let's say to a Roth IRA. So if you're going to do that, you want to do some planning ahead and you want to make sure that you're allowed to. Otherwise, you're going to have to take some of that money back out later.

It is that very reason why some people actually wait to contribute until the following year every time they make their contributions. They haven't planned well and they don't know what their income and tax situation will look like yet until maybe they get a draft tax return done. Or maybe they're a business owner, right? And their income fluctuates up and down. Some years are good years. Some years are bad years. So, instead of contributing for the year right away, they'll wait until the year is over, and they can see what their tax situation looks like. And then that helps them decide how much to put into these accounts.

The downside to waiting out the entire year is that you would have missed an entire year of potential growth on that money in the IRA or the Roth IRA. Right? Depending on what you would have invested in if you let the whole year go by, well, that's lost. You can't really get that back. This is another reason why planning is very important.

Now, I'm going to let you in on another tip, and this one's a pro tip. Let's say you haven't funded your account for 2024 or whatever future year, for that matter, and you are expecting a large tax refund. You can actually file your taxes early. So, let's say you file them in January or February, get your refund, and then use that refund to fund the account for 2024, even though you already filed your taxes.

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As long as you get the contribution done by the tax filing deadline, typically in April, you can do this. Be very careful, though, if trying to pull something like this off. It's best to get with your tax professional to make sure that it's reported correctly on that tax return and to determine the possible timing of your refund payment.

So, if you put on that tax return, I contributed to an IRA, and I'm making a deduction. And then you're hoping on getting that refund in order to actually make that contribution. If you don't get your refund until after the tax filing deadline, you might have some issues here. So, like I said, get with your tax professional, but just know that that's definitely possible. A cool little trick.

Lastly, when it comes to eligibility, depending on your income and your tax filing status, you might be limited to what you can contribute to a Roth IRA specifically. So, we're only talking about Roth IRAs right now. The rules are a little bit different between the two different types of accounts. In fact, if your income is high enough, you might not be able to make your typical Roth IRA contribution at all for you or your spouse.

When it comes to contributing to a Roth IRA in 2024, if what is called your modified adjusted gross income for the year is at or above $161,000, if you file single or $240,000 filing joint, you will not be able to make a regular Roth contribution. Now, you might be able to make a partial contribution if your 2024 income is between $146,000 and $161,000 single or between $230,000 and $240,000 filing joint.

Now, you might be wondering what in the world is modified adjusted gross income. Well, we call it M-A-G-I or MAGI, some people say. It's essentially your adjusted gross income that's shown right there on your tax return on the 1040, but we have to add certain things back into that number.

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Again, I would consult with your professional advisors if you're trying to figure out what this number is, depending on the different rules you're looking at, because sometimes MAGI can be different, and there could be different things added back in depending on what kind of rule or eligibility you're looking at. So, definitely get with a professional. Don't try to just wing this or guess that number.

Okay, so now what if you file married filing separately? What happens then? Well, in this case, it depends.

The first question and definitely the most important question, the number one thing you're concerned with is, did you live with your spouse at any time during the year? If you did, and your MAGI is over just $10,000, you cannot contribute at all to a Roth IRA. If it's under, you will be able to contribute, but it's going to be a limited amount. This shouldn't come as a surprise since oftentimes filing married filing separately ruins a lot of deductions and opportunities.

Now, there are cases where it makes sense to file this way, but if you want to fund a Roth IRA, it's probably not the best. It complicates things. If you didn't live with your spouse at any time during the year and you're married filing separately, then you will have the same limits as a single person, which I mentioned earlier. It's much better than the $10,000 limit that I just mentioned if you did live with your spouse at any time during the year.

Oh, and by the way, if you file head of household, the limits are also the same as being a single individual. If you are above the contribution limits and have determined that you cannot contribute to a Roth IRA, not all is lost. You still may be able to implement a strategy known as the backdoor Roth IRA.

I will go over some of the basics of the backdoor Roth contributions in a bit. We will also have an entire episode dedicated to the backdoor strategy in the near future.

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Okay, so we're going to get into the tax implications when making contributions to these accounts to wrap up today's discussion in a bit. But first, I want to mention some very important rules regarding your eligibility to make certain contributions if you and or your spouse have a retirement plan at work. Yes, having something like a 401(k) plan,403b plan, or other employer plan can actually affect your contributions, but not in the traditional sense.

And actually, when it comes to a Roth IRA, guess what? There actually is no rule. You can fund a Roth IRA as long as you meet the other eligibility requirements that we went over. Whether or not you or your spouse contribute to a plan at work doesn't matter, which is just awesome. At least, you know, there's some good news for you here. However, when it comes to making traditional IRA contributions, you may be limited in what you can deduct on your tax return.

I'll repeat that again. You are limited in what you can deduct, not what you can contribute.

Now, I know you may be a little confused, but let me explain. Anyone with earned income can contribute to a traditional IRA. However, you can make deductible pre-tax contributions that will actually reduce your taxes when you do them. Or you can actually choose to make a non-deductible contribution. Basically, what this means is you contribute to your IRA with your cash, but you don't deduct it when you file your taxes. And therefore, you don't get any tax savings when you put that money in.

However, any interest or other earnings that that contribution generates after you've invested it going forward, all those earnings will be pre-tax money.

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In other words, the contribution you didn't deduct will come out tax-free in retirement when you take it out, but the growth on it won't. So why would anyone contribute but not deduct it on their taxes?

Well, this potential employer retirement plan issue is one big reason why. If you are covered by an employer's retirement plan at work, and you file single, and again have that modified adjusted gross income over $87,000 or $143,000 married filing joint, you cannot deduct your IRA contribution. That being said, if you still wanted to contribute to your traditional IRA, it would have to be a non-deductible contribution.

Now let's say you aren't covered by a plan at work, but your spouse is. In that case, if your MAGI is over $240,000, you cannot deduct the contribution. If it's under the $240,000, you can't.
In this case, the IRS gives you a little more leeway to save for your own retirement if your spouse has a plan at work but you don't have anything. Even if you are under those limits, depending on your MAGI, you still might be limited in terms of what you can deduct. There are certain ranges where they will phase you out, and you won't necessarily be able to contribute the full $7,000, let's say.

Okay, so let's wrap this up with the important tax planning implications of all of this stuff that I've been talking about. Now, this is really important to understand these next few concepts. You don't need to be a tax professional or know the tax code or anything like that or do gobs of research on Google. Just be aware of some of these concepts, like a lot of other things with financial planning, that we talk about on the podcast.

And the reason I say this is because whether you're doing your own taxes or you have a tax professional do your taxes, I see this stuff gets messed up all the time.

0:28:00
And messing up these, reporting of these contributions or contributing when you weren't allowed to and all these things, they can lead to gigantic messes and it can cost you a lot of money. So if you have at least a basic level of understanding, you will be more aware of what to look out for. And like I said, even if you're using a tax professional, I still see some of them mess this stuff up.

So I want you to be aware in that case so that when they do your taxes before they file them, you can take a look at a draft copy, and you can make sure that your contributions or whatever were deducted or you were allowed to make contributions, and then they can file the return. Or if you're doing it yourself, you know, hey, what am I supposed to look out for? What numbers do I need to look at? What rules do I need to look up? So anyway, sorry for the rant there.

When it comes to making a contribution to a traditional IRA to intentionally get the benefits of a tax deduction while also putting your money to work, you will need to be sure to report that contribution on your tax return in the proper place. This is a little tricky since it is deducted on your taxes differently than, say your savings into your 401(k) plan. In the case of a 401(k) plan, your contributions come directly out of your wages or your paycheck before you pay taxes on them. So, it actually never hits your tax return to begin with.

With deductible IRA contributions, you earn the money via your paycheck, pay some income tax via withholdings on that paycheck, then you fund the IRA with some of the net cash that you take home, and then you go take the deduction manually on your tax return, which therefore offsets it and nets it out.

Now if, as I mentioned previously, you are not eligible for the deduction due to being covered by another plan at work or your spouse's job, and you're over those income limits, you can still contribute to a traditional IRA, but remember you just can't deduct it.

0:30:04
In this case, this will be a non-deductible contribution, and you will instead report this on a special IRS form 8606. When you make a non-deductible contribution, you have what is called "basis" in your IRA. Now, that 8606 form is essentially used to report and keep track of that basis. You need to keep track of this over the years due to the fact that when you begin taking money out of your IRA, you don't want to be double-taxed. You don't want to be taxed again on the old non-deductible contribution amounts that you had put into that IRA or that basis. Now this is very important to remember and report properly.

Like I said, even tax professionals miss this form from time to time, and it's good practice to continue filing that 8606 each year you continue to hold basis in your traditional IRA. And since I'm on the topic of basis, I want to briefly go over the backdoor Roth IRA strategy I mentioned earlier.

This is used when your income is over the Roth IRA income thresholds, and you want to get into the party via the backdoor and still make a contribution. In a nutshell, it's a two-step process whereby you intentionally make a non-deductible IRA contribution into a traditional IRA. Then you convert those dollars to a Roth IRA shortly thereafter. In that case, it's not considered a contribution to the Roth IRA but rather a conversion.

Congratulations! You now have the invite to the Roth party, but there's still some things you need to be mindful of here. One is that depending on when you convert the money, you may have some earnings that accumulated on your original non-deductible contribution.

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In this case, if you convert the entire amount, which would include your basis plus any possible pre-tax earnings, you may pay taxes on those earnings that you converted.

For example, you make a $7,000 non-deductible contribution to an IRA, and then by the time you convert it, let's say it earned $100, and then you convert the full $7,100. You will owe taxes on that $100 in pre-tax earnings that you converted, but not the $7,000 in basis.
Secondly, and this is a major one, kind of like that person lurking around waiting to crash the party, and that is if you have pre-tax dollars already in a traditional IRA of some sort, you may have to pay more taxes on the basis that you convert. This is known as the Pro-Rata Rule, and I know you're likely already confused about it. Rightfully so, this stuff can get complicated.

And I will save that Pro-Rata Rule for a future episode since it can definitely throw a wrench into the backdoor Roth IRA strategy. And to be honest, if you're in this camp, I would consult a professional who has experience with this. Don't screw it up.

Again, this strategy will require you to properly file that form 8606, and it can get tricky.

So all that being said, if you're implementing the backdoor strategy or you're considering it, you will need to make sure that the two-step process is recorded correctly on your taxes.

Lastly, I want to talk about the 5-Year Rule for Roth IRA contributions. There is also a different 5-Year Rule for Roth conversions, but we are not going over that today. Just the Rule for contributions.

The first thing to understand is that you can always take out your contributions to a Roth IRA at any time, tax-free and penalty-free. So the amount that you physically put into the account, you can always take back out, unless you invested it and you lost it all, right? The earnings on those contributions are subject to this 5-Year Rule.

0:34:09
Essentially, any earnings that you have on your contributions will not be eligible to be withdrawn tax-free unless you have held a Roth IRA, and it could be any Roth IRA, for at least 5 tax years since your very first contribution and you are over 59 and 1/2. If you're under 59 and 1/2 and have not had a Roth for 5 years and you make a withdrawal, the earnings will be subject to taxes and penalties. There's an extra 10% penalty.

There are some exceptions to owing that penalty, however, but not the taxes, and those are withdrawals due to death or total and permanent disability, certain educational expenses, or up to $10,000 in withdrawals for a first-time home purchase. So again, if you meet any of those exceptions, it might be a penalty-free withdrawal, but you will still owe the taxes.

If, however, you have a Roth that was contributed to over 5 years ago, so you meet that 5-Year Rule, and you're over 59 and 1/2 at the time of the withdrawal, the earnings are tax and penalty-free, right? So, if you met the requirements for the Roth, that's exactly what you wanted to do, and again, you're over 59 and 1/2, so you're using that money in retirement. That's why it's a retirement account.

By the way, the clock, that 5-Year Clock, it starts January 1st of the year you make your first contribution, even if you make that contribution in, let's say, June, right? So, if you opened a Roth in the year 2020, right, but you funded it on June 30th, 2020, your 5-Year Clock started on January 1st of 2020.

0:35:55
So, once 5 years have passed, even if you didn't make any more contributions in future years, you just made that one contribution. Once that 5-Year Period is met, you're good to go on that part of the rules. So, now you just have one other to meet in order to have everything tax and penalty-free, and that is, just don't take those earnings out until you're at least 59 and 1/2.

So, we've gone over a lot of information today. I think that's enough to get you thinking in the right direction for your retirement savings, and we even shared some pro tips for you as well.

I think that does it for today's episode.

If you are concerned about your retirement planning and you want to nail down a plan that you can actually implement over time and take advantage of the different retirement rules and regulations that are currently in place, absolutely reach out to our firm, Plannable Wealth.

We are an advisory firm that does this comprehensive retirement planning for retirees, and we understand the various rules and strategies surrounding the different retirement accounts.

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Securities and advisory services are offered through LPL Financial, a registered investment advisor, member FINRA, SIPC. The opinions voiced in this podcast are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which strategies or investments may be suitable for you, consult the appropriate qualified professional prior to making a decision.

Traditional IRA account owners have considerations to make before performing a Roth IRA conversion. These primarily include income tax consequences on the converted amount in the year of conversion, withdrawal limitations from a Roth IRA, and income limitations for future contributions to a Roth IRA.

In addition, if you are required to take a required minimum distribution, RMD, in the year you convert, you must do so before converting to a Roth IRA. Investing involves risk, including the potential loss of principle.

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Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise, and bonds are subject to availability and change in price. Government bonds and treasury bills are guaranteed by the US government as to the timely payment of principal and interest, and if held to maturity, offer a fixed rate of return and fixed principal value.

Treasury inflation-protected securities, or TIPS, are subject to market risk and significant interest rate risk as their longer duration makes a more sensitive to price declines associated with higher interest rates.

Municipal bonds are subject to availability and change in price. They are subject to market and interest rate risk if sold prior to maturity. Interest income may be subject to the alternative minimum tax. Municipal bonds are federally tax-free, but other state and local taxes may apply. If sold prior to maturity, capital gain tax could apply.

Neither LPL Financial nor its registered representatives offer tax or legal advice. Always consult a qualified tax advisor for information as to how taxes may affect your particular situation.

Asset allocation does not ensure a profit or protect against a loss. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.

This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.