Maximizing Potential

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Depending on where you are on life's journey, the value of planning ahead can run the gamut. It can seem like a chore when you're just starting out. But further down the road, as compound interest kicks into high gear, you're glad you started early. And while saving is totally necessary, it's only half of the equation. The tools you use to invest and grow your funds are key.

Lately, a unique piece of the retirement puzzle, the Roth IRATraditional IRA's younger, more versatile cousin—has been garnering ever more attention. If a Roth IRA isn't already part of your retirement savings plan, it's definitely an option worth considering.

Roth IRA Fast Facts

  • Established by the Taxpayer Relief Act of 1997 to provide a tax-free incentive toward saving for retirement
  • Basic criteria for eligibility requires wage-earning employment
  • Geared toward (but not limited to) younger, lower-earning individuals
  • Tax break comes at withdrawal, not contribution
  • Withdrawal is more flexible than with a Traditional IRA

Here's a plus, right off the bat: Contributions made to a Roth IRA—your principal funds—are always available tax- and penalty-free. It's your money, after all. And while of course it's best for invested funds to stay put, younger investors with less liquidity can find the freedom of a Roth IRA liberating. On the flipside, these same investors are likely in the lowest tax bracket of their adult lives. And come retiring age, taxes on Traditional IRA withdrawals would likely be far higher than income taxes on Roth IRA contributions over their working lifetime. Add in compound interest and money earned outweighs money invested.

And when it comes to saving for your retirement, more can easily add up to a whole lot more. Hence the push to start early. With earnings on contributions compounded, no mandatory withdrawal, and the ability to contribute to a Roth IRA up to retirement and beyond, the advantages are considerable. And with relatively basic criteria for eligibility, contribution limits and withdrawal, a Roth IRA is a pretty hassle-free option to get on the path to retirement savings.

But we're not just talking to beginning investors. For those of you well on your way to retirement, a Roth IRA could be the ideal savings vehicle to add to your arsenal. And whether it's optional in your existing 401(k) or 457(b) retirement plan or not, here's why the Roth IRA is definitely worth a look:

  • No age limit for contributing, no required withdrawals
  • Contributions can be made as long as you're employed, whether part- or full-time
  • Funds can be left to accumulate throughout retirement, providing a consistent source of income
  • Inherited funds are tax-free, making a Roth IRA an excellent estate-planning tool
  • Qualified Roth IRA distributions will not affect taxable Social Security benefits

A Roth IRA is a viable option even if you're relatively close to retirement age, since earnings can be withdrawn tax- and penalty-free after only five years if the owner is over age 59 ½. This differs from a Traditional IRA, in which distributions increase Adjusted Gross Income, resulting in higher taxes and penalties for early withdrawal. Compared with the fees, taxes and restrictions, the increased flexibility of a Roth IRA can be a welcome change.

With our nation in the midst of a so-called "retirement crisis," it's more important than ever to focus on solutions, options, and potential. And while there's a smorgasbord of retirement planning tools at your disposal, once you're locked into a plan it's easy to put blinders on to other—possibly better—options. But it doesn't have to be that way.

So whether you're just starting out, or a good ways down the road, this is about knowing your options, and capitalizing on investment potential. We love that you're in the game, dedicated to making wise choices for your and your family's financial future. You have the will, now let's work on finding the best way.

Securities offered thru Sterne Agee Financial Services, Inc., member FINRA/SIPC. Advisory services offered thru Sterne Agee Investment Advisor Services, Inc. Securities and advisory activities supervised from 4407 Belmont Ave, Youngstown OH 44505, (800) 589-2023.