Retirement

Fund your financial future with an individual retirement plan.

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Traditional, Roth and rollover IRAs offer attractive tax advantages and can serve as primary or supplemental retirement savings vehicles.  

Traditional IRA

Invest in a traditional IRA and defer paying taxes until you make withdrawals in retirement. Why does deferral matter? Simply put, if you think you will be in a lower tax bracket when you retire, your tax savings could be significant when you withdraw the money. Learn more about the traditional IRA:

  • Deferred taxes and tax deductions. In addition to deferring taxes on current investment income or appreciation, you may be able to deduct all or a portion of your annual contribution, depending on your adjusted gross income.
  • Contributions. If you are younger than 70½ in 2017 and have taxable compensation, you may contribute up to the current maximum of $5,500. If you are 50 or older, you can make an additional $1,000 catch-up contribution. You also may contribute for a non-working or minimally working spouse.
  • Reinvested earnings. All earnings from your traditional IRA are automatically reinvested into your account to maximize your total return.
  • Required withdrawals.  At age 70½, the IRS mandates that you begin taking an annual withdrawal called a required minimum distribution (RMD). Your Waddell & Reed financial advisor can assist you in calculating and understanding the RMD process.  

IRA vs. Taxable Account Comparison

Your IRA’s potential growth is tax deferred until withdrawn and can accumulate substantially faster than identical savings in a taxable account

Traditional IRA Comparision

This chart is for illustration purposes only and does not represent the past or future performance of any specific investment. This chart assumes the reinvestment of all earnings and does not take into account any applicable fees, expenses, or possible withdrawals. The chart does not reflect all possible variables that may affect results. This illustration does not reflect the impact of state income taxes. Your situation may be different.

The assumed rate of return is not a guarantee, and investments that pay higher rates of return are generally subject to higher risk and volatility. Please note that lower minimum tax rates on capital gains and dividends would make the investment return for the taxable investment more favorable and thus would reduce the difference in performance between the accounts shown.

Investors should consider their personal investment horizon and income tax bracket, both current and anticipated, when making an investment decision, as these may further impact the comparison.

Roth IRA

What are your tax expectations when you retire? If you think you will be taxed at a higher rate than today, think about saving for retirement with a Roth IRA. You'll make Roth contributions with money that has already been taxed at today's potentially lower rate. When you withdraw in retirement, your contributions and any potential growth may be tax free. That's one big reason to contribute. Other reasons the Roth IRA may be right for you include:

  • Contributions. You can contribute to a Roth IRA as long as you or your spouse have taxable income and your modified adjusted gross income is within the Roth limits. For 2017 you may contribute up to the current maximum of $5,500. If you are 50 or older, you can make an additional $1,000 catch-up contribution.

    Roth IRA Adjusted Gross Income Limits for 2017
    Single, head of household $118,000-$133,000
    Married filing jointly $186,000-$196,000
    Married filing separately $10,000
  • Withdrawals. You can withdraw contributions for any reason at any time without taxes or penalties. However, request a withdrawal before your account is at least five years old or if you are not yet 59½ and the earnings portion may be subject to a 10% penalty (exceptions apply). With a Roth, unlike the traditional IRA, the IRS does not mandate a required minimum distribution at age 70½.

Earn too much to contribute to a Roth IRA? Consider contributing to and converting a traditional IRA to a Roth. A Waddell & Reed financial advisor can explain the details and guide you in this decision.

Rollover IRA

When you’re ready to retire or switch employers, don’t leave without thinking about the assets in your employer’s retirement plan. One option is to transfer them directly to a rollover IRA, where you may benefit from:

  • Tax-deferred retirement savings. Defer taxes on earnings until withdrawn in retirement.
  • No current income taxes. Avoid current income taxes, including a mandatory 20% income tax withholding and possible 10% excise tax, when you rollover.
  • Withdrawal flexibility. Withdraw without tax penalties between ages 59 ½ and 70 ½. After 70 ½, the IRS mandates require minimum distributions based on your average life expectancy

Other options for your assets in a former employer's retirement plan include: 

  • Leave the assets in the plan
  • Keep/spend the assets
  • Receive the assets in a check and deposit them yourself in an IRA rollover
  • Transfer your assets directly into your new employer’s retirement plan

What you choose depends on your previous employer’s plan document, your specific needs and your tax advisor's guidance. 

Add an IRA to your retirement savings plan.

A Waddell & Reed financial advisor can help make it happen.

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Important Information: Early withdrawals are subject to ordinary income tax and a 10% penalty if you take a distribution before reaching age 59½.

This information is provided for informational and educational purposes only. Waddell & Reed believes the information has been obtained from sources considered to be reliable, but does not guarantee the accuracy of the information provided. This information is not meant to be a complete summary or statement of all available data necessary for making financial or investment decisions and does not constitute a recommendation.

Please note that the information provided may include references to concepts that have legal, accounting and tax implications. It is not to be construed as legal, accounting or tax advice, and is provided as general information to you to assist in understanding the issues discussed. Neither Waddell & Reed, Inc., nor its Financial Advisors give tax, legal, or accounting advice.

This information is not meant as financial or investment advice pertaining to your personal situation. The selection of appropriate investment, insurance or planning options and/or strategies should be made on an individual basis after consultation with appropriate legal, tax and financial advisors. Nothing contained herein is intended as a solicitation or an offer to buy or sell any product or service mentioned and they may not be suitable for all investors.

Securities offered through Waddell & Reed, Inc., Member FINRA/SIPC, are not insured by FDIC, NCUA or any other government agency, are not deposits or obligations of the financial institution, are not guaranteed by the financial institution, and are subject to risks, including the possible loss of principal. Insurance products are offered through insurance companies with which Waddell & Reed has sales arrangements. Guarantees provided by insurance products are subject to the claims-paying-ability of the issuing insurance company.

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