SAVING for retirement – you know you have to do it but where do you start? Pile your spare cash under the mattress or forget about it in a savings account?

Neither – the good news is the government want us to save for retirement so there is help available with Individual Retirement Accounts – special investment accounts to help us all save in a better way for our future.

But needless to say, it is not that straightforward. There are hundreds of providers with multiple options for these IRA accounts out there – and we at EmVision Capital Advisors are here to help you find the right ones for you.

There are two main types of account, and each have their pros and cons to consider – do you want a Traditional or Roth account?

Don’t let the names put you off – it is a relatively straightforward question you have to ask yourself. Do you think you will be higher or lower earners when you retire than you currently are?

The reason is inevitable – the taxman is going to take his share of the money – but you get to choose when he takes it, now or later.

Simply put, with a Traditional IRA you get to save your money now since your contributions may be tax deductible in the contribution year, so more cash goes to your future. But – and here is the gamble – you will have to pay current income tax on the money you take out of the account, in addition to the investment gains, when you retire. 1

So you need to ask yourself two questions.

Firstly, do you believe that your income in retirement will put you into a higher or lower tax band than you are currently in? If you think you will be in a higher band when you retire, then a Traditional may not be the way to go – we will pay more tax later rather than less tax now. If you expect to be in a lower band then it may make sense to pay the lower tax rate later in life.

Secondly – and this is more of an uncertain gamble – what will the government do to the tax system in the two, three or four decades before you retire? Given the first significant revision to the tax code in 30 years has just passed through Congress, there is no guarantee on what a future administration may do to tax bands and tax rates. Paying tax later means paying the unknown tax rate of the day, not the tax rate you know you have to pay today, which could be quite different.

The alternative is a Roth IRA – named for its creator Delaware senator William Roth – where you believe you will be higher earners in your golden years.

If you plan well – and here at EmVision Capital Advisors that is what we strive to do for you – and expect to be pushed into a higher tax band when you claim our retirement then you may well choose to pay that tax upfront and now.

So every dollar you pile into the Roth IRA will be a post-tax dollar from your income today, but the taxman will not come calling a second time – the Roth IRA offers tax deferral on any earnings in the account. Withdrawals from the account may be tax free, as long as they are considered qualified. Limitations and restrictions may apply. 2

If you are not sure at all, there is a third option – you are allowed to have both Traditional and Roth IRAs open at the same time and pay into both, so you can hedge your bets and sit on the fence.

That does become a little more complicated in your financial planning – which is where our experienced advisors at EmVision Capital Advisors are here to help advise and guide you.

There are financial limits on how much you can invest in any given fear for both kinds of account which are imposed by the IRS.

The rules can get quite complicated, and are different for each account type – as are rules over penalties for taking money early – which is why we are happy to sit down with you and explore all your options.

EmVision Capital Advisors is here to help you pursue you have a solid financial plan in place for retirement so call us today and make an appointment with one of our experienced advisors.

Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. 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.

1. Withdrawals prior to the age of 59 may result in a 10 per cent IRS penalty in addition to current income tax.
2. Withdrawals prior to age 59 or prior to the account being opened for five years, whichever is later, may result in a 10 per cent IRS penalty tax. Future tax laws can change at any time and may impact the benefits of Roth IRAs. Their tax treatment may change.