Retirement Read Time: 10 min

Tax and Investment Strategies: A Retirement Savings Roadmap

You know the importance of saving for retirement. But what is the best way to do it? Is it just a matter of hoarding money in a separate savings account? Or should you rely on a workplace or state pension plan? We’ve compiled six powerful strategies you can leverage to help you save and pursue your goals for retirement.

Consider a Roth IRA
A Roth IRA is an individual retirement plan funded with after-tax dollars, allowing for tax-free withdrawals. Unlike traditional retirement plans, contributions to a Roth IRA are not tax-deductible. However, once funds are in the Roth IRA, they grow tax-free, and withdrawals after the age of 59½ are also tax-free. This includes both contributions and earnings in the account.

Roth IRAs are typically preferred when you think your tax bracket will be higher in retirement than it is now. In other words, you might want to contribute to a Roth IRA if you anticipate that the total tax you avoid in retirement will be greater than the income tax you would pay on your contributions in the present.

Here are a few important points to note.

  • With a Roth IRA, unlike traditional IRAs, you do not have to take required minimum distributions (RMDs) during your lifetime.
  • A Roth IRA can be used as an estate planning tool because your beneficiaries can inherit the Roth IRA tax-free.
  • Unlike 401(k) plans, Roth IRAs do not include an up-front tax break or an employer match, and the annual contribution limits are lower than those of other retirement investment account types. However, Roth IRAs usually offer more diverse investment options.
  • You have the ability to withdraw your contributions (but not earnings) at any time, without tax or penalty.

Explore Roth Conversion
Under the right circumstances, Roth conversions can be highly advantageous. This process involves transferring assets from a traditional IRA (including SEP or SIMPLE IRAs) to a Roth IRA. The primary benefit is the shift from taxable IRA income to tax-free Roth income. Although the untaxed converted amount is treated as ordinary income in the year of conversion, there's no 10% additional tax for early distributions. This strategy allows for tax-free growth potential in the Roth IRA, going forward.

Even with these benefits, you should carefully explore your situation before opting for a Roth conversion.

  • A Roth conversion cannot be undone or “recharacterized.”
  • You’ll need to clearly understand the tax implications for the tax year in which you do it.
  • There is a five-year waiting period if you are under 59½ before you can use the funds without owing the 10% additional tax. If you might need these funds in the short term, this probably isn’t an ideal strategy.
  • Understand that you cannot convert RMDs (see below). RMDs must be satisfied first before the Roth conversion is completed.
  • The state in which you live or will retire is an important factor to consider as you explore all the possible tax implications.

Make Catch-up Contributions
Catch-up contributions are a special feature of retirement savings plans that allow individuals aged 50 and over to contribute more money than the standard annual contribution limit. This is particularly helpful for those who may have started saving for retirement later in life or those who want to ramp up their savings as they approach retirement age. However, these benefits shouldn’t overshadow the greater need to have a retirement plan from the start of your career and to begin contributions early.

Take Advantage of the Saver's Credit
The "Saver’s Credit," also known as the “Retirement Savings Contribution Credit,” offers a nonrefundable tax benefit for individuals with low to moderate incomes who contribute to retirement accounts. Unlike a tax deduction, which lowers taxable income, the saver’s credit directly reduces your tax bill dollar for dollar, up to a maximum determined by your income level.

You might be eligible for the saver’s credit if you fulfill the following criteria:

  • You are 18 or older
  • You are not a full-time student
  • You are not claimed as a dependent on another person’s tax return
  • You contribute to an eligible retirement plan
  • You fall under the maximum adjusted gross income cap, which the IRS sets each year

The saver’s credit can provide a benefit of up to $1,000 for individuals ($2,000 for married couples filing jointly). This credit's value is determined based on your contributions to eligible retirement accounts such as an IRA, 401(k), or similar workplace retirement plan. It's important to note that to qualify for the credit, contributions must be made with "new money;” rollovers between retirement accounts are not considered eligible contributions.

Avoid Early Withdrawal Penalties
Withdrawing money early from retirement plans can trigger hefty penalties and could be a taxable event, depending on the nature of the account and the withdrawal. A way to avoid penalties is to build up an emergency fund for those unexpected expenses that tempt you to dip into your retirement savings.

In workplace retirement plans like the 401(k), participants may be eligible for hardship distributions under certain circumstances. These distributions are permitted when there is an immediate and heavy financial need for the participant, their spouse, or dependents. However, it's important to note that the amount withdrawn is generally limited to the immediate need and cannot be repaid into the retirement account.

Distributions from IRAs, including SEP-IRAs and SIMPLE-IRAs, are generally allowed at any time. However, withdrawing funds from an IRA before reaching the age of 59½ may result in the distribution being included in your gross income and subject to a 10% additional tax penalty. There are exceptions to this penalty, such as using the funds to pay for medical insurance premiums after experiencing a job loss.

Understand Required Minimum Distributions
A required minimum distribution (RMD) is a minimum amount you must withdraw from your retirement account(s) to satisfy federal tax rules. This requirement starts once you reach your required beginning date (typically at age 72).

RMDs are subject to income taxes. The amount RMDs are taxed is based on two elements: your account balance at the end of the previous year, and the life expectancy factor provided by the IRS in the Uniform Lifetime Table. Your RMD can vary annually based on these factors.

Here are some other key takeaways concerning RMDs:

  • Withdrawals from your IRA, SEP-IRA, SIMPLE IRA, and retirement plan accounts generally start when you reach age 72.
  • Roth IRAs are different. They have no mandatory withdrawals during the owner's lifetime. Required withdrawals begin only after the death of the owner.
  • Workplace-based retirement plans, like 401(k)s, may allow you to postpone RMDs until retirement, depending on plan rules.

Mapping Out Your Retirement Journey
These six strategies can help drive the implementation of a robust, comprehensive retirement plan. Most people will need to pick and choose the strategies that make the most sense for their situation and goals. With professional guidance, however, you can use strategies like these—and more—to your advantage as you work toward the future you envision for yourself and your family.

Let’s explore these strategies and map out a retirement journey that gets you where you want to go.


For a comprehensive review of your personal situation, always consult with a tax or legal advisor. Neither Cetera nor any of its representatives may give legal or tax advice.

Some IRA’s have contribution limitations and tax consequences for early withdrawals.

Converting from a traditional IRA to a Roth IRA is a taxable event.

A Roth IRA offers tax free withdrawals on taxable contributions. To qualify for the tax-free and penalty-free withdrawal or earnings, a Roth IRA must be in place for at least five tax years, and the distribution must take place after age 59 ½ or due to death, disability, or a first time home purchase (up to a $10,000 lifetime maximum). Depending on state law, Roth IRA distributions may be subject to state taxes. 

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