Roth IRA: Questions to Consider

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Roth IRA

Introduction: Like the traditional IRA (See “What is a Traditional IRA?” for more specific information on traditional IRAs) the Roth IRA allows individuals to shield investment earnings from taxes while the account grows. Unlike the traditional IRA, however, it does not offer a current tax deduction for contributions.

The primary benefit of the Roth IRA is the potential for tax-free income in retirement. With a Roth IRA both the contributions and the internal growth of the account can be withdrawn with no tax liability if certain conditions are satisfied. Therefore, when choosing between a Roth IRA and a traditional IRA, here are some of the key questions plan participants might want to consider:

1. “Will I benefit more from a tax deduction now or tax-free income later?

Many people are willing to pay tax on their income now in exchange for tax free income later. However, the answer to this question is sometimes hard to determine and frequently it is best discussed with a qualified tax advisor.

2. “If I currently have assets inside a traditional IRA, can they be converted into a Roth IRA?

Traditional IRAs can be converted to Roth IRAs, but certain rules do apply:

  • Income tax payments: Any deductible contributions and all investment earnings in a traditional IRA will become fully taxable at the time of conversion.
  • Income limits: There are no income limits on Roth conversions.

3. “If I have a Roth 401(k), can those assets be rolled over into a Roth IRA rollover?

Plan participants leaving their employer may want to consider rolling over their Roth 401(k) assets into a Roth IRA rollover. Many of the benefits attributed to a traditional IRA rollover also apply to a Roth IRA rollover, including continued tax deferral and flexibility of investment options.

4. “Can I rollover my 401(k) assets into a Roth IRA?

You can rollover your 401(k) assets into a Roth IRA. However, this will be a taxable event and it is subject to the same requirements as an traditional IRA to Roth conversion.

5. "Do I have to take required minimum distributions from a Roth IRA after age 70½?

Individuals are not required to take minimum distributions from a Roth IRA after age 70˝, which makes the Roth IRA a potentially effective estate planning tool. Roth IRA owners can let the account grow indefinitely and then pass the tax free proceeds on to their heirs. Non-spousal beneficiaries will have to take minimum distributions each year based on their life expectancy, but this income will be tax-free if the required conditions are satisfied.

6. “Can I access my Roth IRA money prior to retirement?

Roth IRA contributions can be withdrawn at any time with no taxes or penalties because the taxes were paid up-front when the contributions were initially made. Non qualified withdrawals of earnings from a Roth IRA made before age 59˝ are subject to income taxes and a 10% penalty tax. After holding the account for at least five years, Roth IRA owners can take tax-free qualified withdrawals:

  • After attainment of age 59½
  • On account of disability or death of the account holder
  • For first-time home purchase (up to $10,000)

Finally, keep in mind that contribution limits are the same for both traditional and Roth IRAs and are applied in the aggregate. That means that for 2015, taxpayers younger than age 50 can contribute a total of $5,500, while those aged 50 and older can contribute up to $6,500.

Many factors will influence whether to choose a Roth or traditional IRA. A qualified tax advisor can be a valuable resource in the decision-making process.

About John Hancock

John Hancock is a unit of Manulife Financial Corporation, a leading Canadian-based financial services group serving millions of customers in 22 countries and territories worldwide. Operating as Manulife Financial in Canada and Asia, and primarily through John Hancock in the United States, the Company offers clients a diverse range of financial protection products and wealth management services through its extensive network of employees, agents and distribution partners. Funds under management by Manulife Financial and its subsidiaries were $596 billion as of December 31, 2014. Manulife Financial Corporation trades as 'MFC' on the TSX, NYSE and PSE, and under '0945' on the SEHK. Manulife Financial can be found on the Internet at www.manulife.com. John Hancock may be found on the Internet at www.johnhancock.com.

The John Hancock unit, through its insurance companies, comprises one of the largest life insurers in the United States. John Hancock offers a broad range of financial products and services, including whole life, term life, variable life, and universal life insurance, as well as college savings products, fixed and variable annuities, long-term care insurance, mutual funds and various forms of business insurance.

A fund’s investment objectives, risk, charges and expenses should be considered carefully before investing. The prospectus includes this and other important information about the fund. To obtain a prospectus, call your financial professional, John Hancock Investments at 1-800-255-5291 or visit our web site at www.jhinvestments.com. Please read the prospectus carefully before investing or sending money.

This material does not constitute tax, legal or accounting advice and neither John Hancock nor any of its agents, employees or registered representatives are in the business of offering such advice. It was not intended or written for use and cannot be used by any taxpayer for the purpose of avoiding any IRS penalty. It was written to support the marketing of the transactions or topics it addresses. Anyone interested in these transactions or topics should seek advice based on his or her particular circumstances from independent professional advisors.

John Hancock Funds, LLC
Member FINRA
601 Congress Street
Boston, MA 02210-2805
www.jhinvestments.com



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