We're addressing your IRA inquiries, covering everything from rollovers to contributions, with Jean Chatzky and IRA authority Ed Slott.

IRAs, or individual retirement accounts, often raise a host of questions, prompting us to create this focused Mailbag episode alongside our broader IRA discussion with Ed Slott, a leading voice in IRA education. Ed, a CPA and author of The New Retirement Savings Time Bomb, brings invaluable insights.

In this episode, Jean and Ed respond to eight critical IRA questions sent in by listeners. If you have a question for an upcoming episode, feel free to reach out to us!

Listen as Jean guides a recent college graduate eager to set up IRAs for her parents. She's aiming to secure their retirement but is uncertain about the initial steps. We also hear from a 45-year-old woman with two well-funded Roth IRAs who wonders if she should invest in a traditional IRA for additional security.

We address the perennial question: Should one convert a traditional IRA to a Roth IRA? Then, a 38-year-old mother shares her experience rolling over a $22,000 annuity from a previous employer into a Roth IRA. Now, she's exploring various strategies to reduce her AGI since the rollover will be taxable income.

Another listener, making a career switch, is curious about rolling over her 401(k) into an IRA and executing a backdoor IRA conversion this year. She's uncertain about her tax bracket for 2022, so timing feels crucial.

One listener poses a straightforward question: Is it worthwhile to contribute to an IRA if you exceed the income limit for tax deductions? She feels behind in retirement savings and wants to maximize her contributions.

Finally, we discuss the primary advantages of investing in an IRA compared to a 401(k). A listener asks whether the main benefit of an IRA is the wider array of investment options or if other factors play a role in choosing an IRA over a 401(k). Jean and Ed cover everything you need to know.

Transcript

Jean Chatzky: (00:00)
Welcome to our IRA-focused mailbag episode. Joining me is Ed Slott, who's here to answer your questions. Ed's new book, The New Retirement Savings Time Bomb, is all about IRAs. If you missed our earlier discussion, I recommend catching up for a solid IRA overview.

Ed Slott: (01:03)
Sounds great.

Jean Chatzky: (01:05)
Our first question comes from Libby, who asks whether she should convert her traditional IRA to a Roth IRA. At 64 and already retired, she has a traditional IRA valued at $613,000, which includes substantial stock and bond funds. She doesn't foresee needing these funds until she's 70. What's your take, Ed?

Ed Slott: (02:01)
She's in a good situation and should consider converting at least part of her traditional IRA to a Roth IRA. Diversifying tax risk is essential, and her current accounts are heavily weighted towards taxable options. A gradual conversion could be beneficial, especially as she can manage the tax implications.

Jean Chatzky: (02:44)
That makes sense. The next question is from Cheyenne, a 23-year-old listener. She's seen how her parents, aged 54 and 50, have not adequately prepared for retirement and wants to help set up Roth IRAs for them. They lack 401(k) plans and have previously depleted their retirement funds due to poor decisions. Cheyenne wonders how to encourage them to prioritize retirement savings.

Ed Slott: (06:31)
You can guide them, but ultimately, they need to want to take action themselves. Automation might help; if you can assist them in setting up regular contributions, that could instill a sense of urgency.

Jean Chatzky: (07:00)
Encouraging them to regularly monitor the growth of their investments could also motivate them to stay engaged.

Ed Slott: (08:25)
Absolutely. Next, we have Brenda, who's 45 and has two funded Roth IRAs, a pension, and a 401(k). She's uncertain if she's doing enough for retirement. Brenda wants to know if she should consider a traditional IRA or if her current strategy is sufficient.

Ed Slott: (09:40)
It sounds like Brenda is on track, especially if she's consistently saving and investing. She should focus on maximizing contributions to her current accounts and consider a Roth 401(k) if available.

Jean Chatzky: (11:07)
Next, Joanna, a 38-year-old mom, asks about rolling over a $22,000 annuity into her Roth IRA. She's looking for ways to reduce her AGI to avoid a large tax bill.

Ed Slott: (15:19)
With her conversion, she should expect a spike in income, but this is a long-term investment strategy. It's crucial to consider the future growth potential of her Roth.

Jean Chatzky: (16:52)
Are there additional strategies for reducing AGI?

Ed Slott: (17:33)
She should ensure she's maximizing all available tax advantages, but it may be challenging given the new standard deductions.

Jean Chatzky: (18:02)
Next, Ann asks about the benefits of IRAs compared to 401(k)s since she has a defined benefit plan and a 401(k) without a company match.

Ed Slott: (25:51)
The key benefits of an IRA include a broader range of investment options and more control over withdrawals. However, 401(k)s can offer loans and potentially lower fees.

Jean Chatzky: (27:25)
There are pros and cons to both, and it ultimately depends on individual circumstances.

Ed Slott: (27:50)
IRAs also provide opportunities for charitable distributions, a feature not available in 401(k)s.

Jean Chatzky: (29:25)
Thanks for your insights, Ed! This discussion has been incredibly informative.

Ed Slott: (29:36)
Thanks for having me, Jean.

Jean Chatzky: (29:44)
Thank you, listeners, for tuning in. We hope you'll consider your IRA and perhaps make some adjustments. We love hearing from you!