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Spend Your Retirement The Way You’re Meant Too…         

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The traditional IRA is funded with money that has not been taxed, how this would work is an agreed amount of your pension is paid into your IRA before tax has been deducted, what this then means is any investment gains are liable for tax once you withdraw in your retirement. When presented with the simple argument that a traditional IRA means you have to pay potentially huge taxes on your retirement turns many people towards the newer Roth IRA, however there are still many reasons to go traditional.

The main reason traditional is still an option for many high earners is the fact that you can contribute an unlimited amount and it does not matter how much you earn whereas a Roth will only allow you to contribute if you are below a certain income threshold. The other advantage is if you’re not covered by a retirement plan at work, you can deduct the entire amount of your IRA contribution (up to $5,500 annually, or $6,500 if you’re 50 or older) on your income tax return.

The final main reason for using a traditional IRA depends on how you invest, say for example you invest in a precious metal which value remains secure but does not increase in great amounts. Now your money has been kept but your yields may not be great, however this means you have very little tax to pay, so effectively you could use it to avoid paying tax as you did not pay tax on the funds originally and now you have very little investment gains that are eligible for tax,  and if you started your IRA at a young age you could have saved yourself from decades of tax, well done you! It is however going to be difficult to choose investments that remain frozen over several decades. If you want to know what historically the most stable (the most boring) bullion has been then  we can tell you it is probably palladium bullion’s, which is extremely rare and the use for it is becoming more demanding, however it as never excited the investment world the same way gold has.

To be honest this is where the advantages stop, it is a more tax efficient way of saving for your retirement but it is not very flexible, for example you cannot contribute after 70 1/2 years of age and by this age you must also be withdrawing a minimum amount.

For those high earners and big investors your only choice may be a Traditional IRA however there is a back door IRA option, essentially you can setup and contribute to your IRA and then convert it to a Roth IRA, and you can also do this multiple times believe it or not, we suggest you contact us and ask us about this in more detail or simply get your guide at the top of this page.

Is A Traditional IRA Another Means For The Government To Charge the Wealthy?

In our opinion yes, if you were to contribute large amounts to your IRA and you then self directed your investments and lets say you saw a great return, maybe for the large investors this means millions of dollars, you will be taxed on all these returns. For this reason the government probably make a lot of money through this method. If you were to keep digging you will understand how all the restrictions and rules around the traditional IRA benefits the government and are all designed to stop you from gaining too much. To beat the system you have to be smart. What we suggest is opening several IRA’s. Then those where the investments stay stable leave as they are as you are just avoiding tax as previously mentioned, but those that are seeing investment gains convert into Roth as soon as you can.