New ACA Tax Makes Roth IRAs More Attractive

By Yann Kostic from the December 2013 Edition

Roth IRAs may soon assume a greater role in many people’s retirement planning, as distributions from these accounts are not subject to the same taxes as other income.

Roth IRAs are individual retirement accounts that allow you to set aside after-tax income up to a specified amount each year. Because you pay taxes on the money now, earnings on the account are tax free, as are withdrawals (if taken after age 59½.)

They have long appealed to investors with lower incomes now than they expect to have in the future, as well as investors who think taxes will rise, not fall. However, now there’s a new reason to consider a Roth IRA: the Affordable Care Act (ACA).

Under the ACA, a new 3.8 percent tax is imposed on unearned net investment income of taxpayers with modified adjustable gross income (MAGI) greater than $200,000 for individuals, or $250,000 for married couples filing jointly.

If you meet those income thresholds, you’ll pay 3.8 percent more in federal income tax on whichever is less: your investment income or the amount of your MAGI that exceeds $200,000 or $250,000.

Although income received from a traditional IRA, 401(k) or pension isn’t subject to the additional tax, it can push your other income above the threshold. Withdrawals from Roth IRAs don’t count as income, so they won’t help push you over the $200,000 or $250,000 threshold.

Your advisor will explain the tax implications of investing in a Roth IRA and help you choose what is right for you.

Yann Kostic is a Financial Advisor (RIA) and Money Manager with Atlantis Wealth Management specializing in retirees (or soon to be), self-reliant women and Expats in Mexico. Yann works with TD Ameritrade Institutional (the custodian of client’s assets). He splits his time between Central Florida and the Central Pacific Coast of Mexico (and now the Lake Chapala area as well). Comments, questions or to request his Newsletter

“News You Can Use” Contact him at Yannk@AtlantisWealth.com, or by phone in Mexico (314) 333-1295 or in the US (321) 574-1529.

 

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