Curious about IRAs? This episode covers your most pressing questions on individual retirement accounts.

Retirement-related inquiries dominate our discussions: from planning and managing funds to knowing where to save. This week, we focus on IRAs—traditional, Roth, conversions, and common misconceptions.

To shed light on these topics, we welcome Ed Slott, a CPA and noted IRA educator. He's also a columnist and recently published a book titled The New Retirement Savings Time Bomb: How to Take Financial Control, Avoid Unnecessary Taxes and Combat the Latest Threats to Your Retirement Savings. This book outlines a strategy for navigating recent changes in retirement and tax laws.

Join us as Ed and Jean discuss the SECURE Act, its implications for retirement savings, and the best strategies after the stretch IRA's elimination.

We simplify the process of opening an IRA and the necessary paperwork for beginners. We also explore who should consider an IRA versus a 401(k) or other employer-sponsored plans.

Additionally, we discuss Roth conversions, backdoor contributions, spousal IRAs, and SEP IRAs.

Ed shares crucial insights on common pitfalls regarding IRAs and emphasizes understanding both the accumulation phase and the distribution phase of retirement savings.

For our Mailbag segment, click here. Don't miss this thorough overview of IRAs, featuring insightful questions from our listeners and members of our private Facebook Group.

Transcript

Ed Slott: (00:01)
Once you turn 72, you must begin withdrawing funds, triggering significant tax implications. That's why I advocate for Roth IRAs; they don't require minimum distributions during your lifetime.

Jean Chatzky: (00:20)
This discussion is supported by Fidelity Investments. Moms, is your money working hard for you? Join us for a candid conversation about family financial futures at Fidelity.com/HerMoney.

Jean Chatzky: (00:42)
Hi everyone, I'm Jean Chatzky. It's great to have you with us. Many of you have reached out with questions regarding retirement, especially concerning IRAs. With the contribution deadline approaching for the 2020 tax year, now is the time to act if you're thinking of opening an IRA.

Ed Slott: (03:32)
It's great to be back, Jean.

Jean Chatzky: (03:35)
I'm excited to discuss your new book, which I consider essential reading for anyone with an IRA. What motivated you to write this edition?

Ed Slott: (03:55)
I observed significant changes over the past 20 years, with more people relying on IRAs since pensions are less common. Now, many see their IRAs as their primary retirement asset, which comes with increased tax implications.

Jean Chatzky: (06:35)
Only 17% of people still have pensions, and with social security not fully covering retirement, self-savings are crucial. However, the SECURE Act has complicated retirement savings. Can you explain its implications?

Ed Slott: (07:34)
The SECURE Act aimed to encourage savings but inadvertently reduced their effectiveness as a wealth transfer mechanism.

Jean Chatzky: (07:51)
What specific changes should we be aware of?

Ed Slott: (07:58)
Congress has restricted the use of IRAs as estate planning tools, requiring beneficiaries to withdraw funds within ten years of the account holder's death.

Jean Chatzky: (08:52)
How does this taxation impact long-term savings?

Ed Slott: (09:53)
Many underestimate the tax liabilities on their retirement funds, often thinking they have more than they actually do.

Jean Chatzky: (10:36)
How can we mitigate these tax concerns?

Ed Slott: (10:46)
Consider Roth conversions to shift assets into tax-free accounts.

Jean Chatzky: (11:50)
How does timing affect these conversions?

Ed Slott: (12:16)
It's crucial to consider market conditions when planning a conversion. Spreading out conversions over time can optimize tax efficiency.

Jean Chatzky: (12:49)
Can you elaborate on the backdoor Roth strategy?

Ed Slott: (14:07)
A backdoor Roth allows high earners to contribute to a Roth IRA indirectly through a nondeductible traditional IRA.

Jean Chatzky: (14:40)
Is this method beneficial for everyone?

Ed Slott: (14:47)
Yes, it offers a way to bypass income limits for Roth IRA contributions.

Jean Chatzky: (17:11)
What about spousal and SEP IRAs?

Ed Slott: (37:03)
Spousal IRAs enable non-working spouses to benefit from their partner's earnings, while SEP IRAs are ideal for self-employed individuals, allowing higher contribution limits.

Jean Chatzky: (40:13)
Thanks, Ed, for sharing your expertise. We'll continue this discussion in our next episode. Don't forget to check out the bonus mailbag with additional IRA questions!