3 Smart Roth IRA Moves You Can Make Right Now

Roth IRAs are uniquely suited to help retirement savers reach their financial goals. They're not as popular as their traditional IRA counterparts, largely because Roth IRAs don't offer an upfront tax deduction. What Roth IRAs give you, however, can be even more valuable: tax-free growth on assets for as long as you hold them within the account. By using these three strategies, you can make the most of a Roth IRA and cut your lifetime tax bill to Uncle Sam while ensuring a financially secure retirement for yourself and your loved ones.

1. Open a Roth IRA right now.

Many people mistakenly think that they can no longer contribute to any type of IRA right now because the deadline for filing taxes has passed. That's true for contributions for the 2016 tax year, but it's not too early to make contributions to a Roth IRA for 2017. In fact, the earlier you contribute, the sooner you can start benefiting from the tax-free treatment that Roth IRAs enjoy.

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Anyone who has income under the appropriate limits can contribute to a Roth IRA. The chart below shows how much income you can have before your ability to make a Roth contribution will be reduced.

For this filing status:

Contributions are reduced if income is above this amount

Contributions are not available if income exceeds this amount

Single, head of household, or married filing separately -- if you didn't live with your spouse during the year



Married filing jointly or qualifying widow or widower



Married filing separately if you lived with your spouse at any point during the year



Data source: IRS. Income here refers to modified adjusted gross income as defined by the IRS.

Contribution limits for 2017 are $5,500 for those younger than age 50, or $6,500 for those 50 or older. Those limits are reduced pro rata in between the two numbers listed above. So for instance, if you file jointly and have modified adjusted gross income of $191,000, then your maximum Roth contribution falls by half to $2,750 or $3,250 depending on your age. However, even if you can only make a partial contribution, it's often in your best interest to take as much advantage of the Roth's benefits as you can.

2. Consider converting traditional retirement accounts to a Roth IRA.

Regardless of whether you contribute to a Roth IRA, you also have an option to take existing money in traditional IRAs and 401(k) plans and convert it to a Roth IRA. Doing so lets you turn any future interest, dividends, and capital gains on your investments into tax-free income. But conversions come with a price: You have to pay taxes on the amount you convert.

Many retirees find it useful to have both types of retirement accounts at their disposal. That way, they can withdraw from traditional IRAs up to a certain point, recognizing taxable income on those withdrawals. Then, if they need additional money, tapping the Roth IRA has no further impact on taxable income. The ability to manage your taxes can be quite valuable in retirement, and that makes having some money in a Roth particularly useful.

3. Check the risk level in your portfolio.

Roth IRAs are just one tool in your investing arsenal, and their tax-free nature makes them especially valuable for anticipated high-growth investments. However, you still want to make sure that you control your risk level so that you're not overextended in your Roth IRA. That's more dangerous now than in many market environments because eight years of a nearly straight-up bull market have sent share prices soaring. As a result, you might have a more stock-heavy portfolio than you realize.

With a Roth IRA, you have a couple of options. You can rebalance your IRA by selling off strong performers and using the money to pick up more value-priced investments. Alternatively, if you think of your entire portfolio as one unit, then you can leave your Roth IRA untouched but take steps to make the rest of your investments more conservative. Whichever you choose, make sure you're comfortable with the overall level of risk among all your investments.

Roth IRAs have special properties that make them very useful in retirement. By using these smart strategies, you can take full advantage of Roth IRAs and make them a key part of your retirement planning. An IRA can be the most important weapon in your retirement-saving arsenal, so make sure you use it to its full advantage. These three steps can be a great start to ensuring that your IRA will help you reach all your financial goals in retirement.

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