FIDELITY CAPITAL MANAGEMENT
IRAs & Roth IRAs

IRAs are great retirement investment instruments and the retirement advisors at Fidelity Capital Management can help you make the most of the tax benefits offered by IRAs.

A Traditional IRA and a Roth IRA offer different advantages. Deciding whether to open a Roth IRA or Traditional IRA is a major decision.

Traditional IRA:
A Traditional IRA is a tax-deferred savings account set up through an investment institution. IRA investing options can include stocks, bonds, mutual funds, cash equivalents, real estate, and other investment instruments. One of the benefits of a Traditional IRA is the potential for tax-deductible contributions.
You can contribute directly to a Traditional IRA or you can transfer assets directly from another type of qualified plan, such as a SEP or a SIMPLE IRA. Rollovers can also be made from a qualified employer-sponsored plan, such as a 401(k) or 403(b), after you change jobs or retire.
Not everyone contributing to a Traditional IRA is eligible for a tax deduction. If you are an active participant in a qualified workplace retirement plan, such as a 401(k) or a simplified employee pension plan, your IRA deduction may be reduced or eliminated, based on your income. Moreover, nondeductible contributions may necessitate some complicated paperwork when you make withdrawals from your account. If your contributions are not tax deductible, you may be better served by another retirement plan, such as a Roth IRA. The retirement advisors at Fidelity Capital Management can help you determine what retirement instruments are right for you.
The funds in a Traditional IRA accumulate tax deferred, which means you do not have to pay taxes until you start receiving distributions. Withdrawals are taxed as ordinary income. If taken prior to age 59 1/2, withdrawals may also be subject to a 10% federal income tax penalty, but there are some exceptions to this early-withdrawal penalty.
You must begin taking annual required minimum distributions (RMDs) from a traditional IRA after you turn 70 1/2 or you will be subject to a 50% income tax penalty on the amount that should have been withdrawn. Of course, you can always withdraw more than the required minimum amount, or even withdraw the entire balance as a lump sum.

Roth IRA
Roth IRAs differ from Traditional IRAs in that you cannot deduct contributions made to a Roth. However, qualified Roth IRA distributions in retirement are free of federal income tax and aren't counted as gross income. That can be advantageous if you are in a high tax bracket in retirement or taxes go up in the meantime.
Another way the Roth IRAs can be advantageous is that you can contribute to a Roth after age 70 1/2 as long as you have earned income, and you don't have to begin taking mandatory distributions due to age, as you do with a Traditional IRA.
Roth IRA withdrawals of contributions (not earnings) can be made at any time and for any reason; they are tax-free and not subject to the 10% federal income tax penalty for early withdrawals. To qualify for a tax-free and penalty-free withdrawal of earnings in retirement (after age 59 1/2), a Roth IRA must have been in place for at least five tax years. Although qualified Roth IRA distributions are free of federal income tax, they may be subject to state and/or local income taxes. Eligibility to contribute to a Roth IRA phases out for taxpayers with higher incomes.
Fidelity Capital Management offers independent financial planning solutions and personalized wealth management advice targeted to your retirement goals and financial circumstances. Let the investment advisors at Fidelity Capital Management help you secure your retirement nest egg.

Your Choice : Your Options

Traditional IRA versus Roth IRA:

Traditional IRAs
  • A well designed 401(k) plan can help you attract and keep talented employees.
  • Tax deductible contributions (depending on income level)
  • Withdraws may begin at age 59 1/2 and are mandatory by 70 1/2
  • Taxes are paid on earnings when withdrawn from the IRA
  • Funds can be used to purchase a variety of investments (stocks, bonds, certificates of deposits, etc.)
  • Available to everyone; no income restrictions
  • All funds withdrawn (including principal contributions) before 59 1/2 are subject to a 10% penalty (subject to exception)Participants can roll over their plans and take their benefits with them if/when they leave the company.

Roth IRAs
  • A well designed 401(k) plan can help you attract and keep talented employees.
  • Contributions are not tax deductible
  • No Mandatory Distribution Age
  • All earnings and principal are 100% tax free if rules and regulations are followed
  • Funds can be used to purchase a variety of investments (stocks, bonds, certificates of deposits, etc.)
  • Available only to single-filers making up to $95,000 or married couples making a combined maximum of $150,000 annually
  • Principal contributions can be withdrawn any time without penalty (subject to some minimal conditions)

*Tax Deferred versus Tax Free

The major difference between the Traditional and Roth IRA is the way the government treats the taxes. If you put money in a Traditional IRA, you can deduct the contribution from your income taxes. At 59 1/2, you may begin withdrawing funds but will have to pay taxes on all of the capital gains, interest, dividends, etc., that were earned over the past years.

On the other hand, if you put money in a Roth IRA, you will not receive the income tax deduction. If you need the money in the account, you can withdraw the principal at any time (although you will pay penalties if you withdraw any of the earnings). Upon reaching retirement age, you can withdraw all of the money 100% tax free.

The financial advisors at Fidelity Capital Management can help you decide which type of IRA is right for your retirement plan and help you open the IRA of your choice. For a free retirement planning consultation, call: 610-972-4887





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