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Roth, Traditional, or Both: Considerations to Weigh
Have you chosen the right plans to help maximize your wealth in retirement?
We review key points to weigh when choosing a Roth or traditional retirement plan to help you maximize retirement income. In some instances, it may make sense to choose both.
- Expected tax rate in retirement - If you expect your future tax rate will be lower than your present rate when you make the withdrawal in retirement, a traditional plan may offer you more spendable income. If you expect your tax rate will be higher or the same, a Roth may provide you with more spendable income.
- Unexpected spikes in expenses - An irregular, large expense funded by a withdrawal from a traditional account could result in higher Medicare premiums, more of your Social Security benefits being taxed, and raising your tax bracket. Qualified withdrawals from Roth accounts do not have these effects.
- Required Minimum Distributions (RMDs) - Traditional accounts, both 401(k)s and IRAs, require you to withdraw money once you reach age 70 1/2, while Roth IRAs do not (with some exceptions).
- Gifting to heirs - If you expect your heirs to be in a lower tax bracket when they withdraw the money than you are currently in now and you are most interested in maximizing your gift, a traditional account would seem the best choice. But some prefer a Roth for a bequest since it is more straightforward in the eyes of the inheritors as the gift will be untaxed.
Traditional and Roth plans have different features that can affect your spendable income in retirement. Speak with your advisors to determine the option, or combination of options, that may be available and appropriate for you.
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The PNC Financial Services Group, Inc. (“PNC”) uses the marketing name PNC Center for Financial InsightSM to provide wealth planning education to individual clients through its subsidiary, PNC Bank, National Association (“PNC Bank”), which is a Member FDIC. Securities products, brokerage services, and managed account advisory services are offered by PNC Investments LLC, a registered broker-dealer and a registered investment adviser and member of FINRA and SIPC. Insurance products may be provided through PNC Insurance Services, LLC, a licensed insurance agency affiliate of PNC, or through licensed insurance agencies that are not affiliated with PNC; in either case a licensed insurance affiliate may receive compensation if you choose to purchase insurance through these programs. A decision to purchase insurance will not affect the cost or availability of other products or services from PNC or its affiliates. PNC does not provide legal, tax, or accounting advice unless, with respect to tax advice, PNC Bank has entered into a written tax services agreement. PNC does not provide services in any jurisdiction in which it is not authorized to conduct business. PNC Bank is not registered as a municipal advisor under the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Act”). Investment management and related products and services provided to a “municipal entity” or “obligated person” regarding “proceeds of municipal securities” (as such terms are defined in the Act) will be provided by PNC Capital Advisors, LLC, a wholly-owned subsidiary of PNC Bank and SEC registered investment adviser.
“PNC Center for Financial Insight” is a service mark of The PNC Financial Services Group, Inc.
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