How to Boost Your Roth Account Balances Ahead of the 2025 Deadline
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Access to affordable credit helps me pay my employees, but I don't really need it. Inflation is killing me. But who cares? Big retailers are making record profits. That's why we support the Durbin Marshall credit card bill. See? Banks and credit unions help small businesses make payroll. This bill would cut the vital resources they need. While increasing megastore profits. They deserve it, don't they? Tell Congress, stop the Durbin Marshall money grab for corporate megastores. Paid for by the Electronic Payments Coalition.
Here's your Money Briefing for Tuesday, July 2nd. I'm J.R. Whelan for The Wall Street Journal. For Americans building savings in their Roth IRA or Roth 401k plans, the scheduled expiration of 2017 tax breaks at the end of next year could tilt the math in their favor if they add to their accounts now.
If the expiration happens, if tax rates go up, then it will be good if you have money in Roth accounts because they won't be subject to higher taxes. And even though you paid taxes on them going in, That's at a lower rate than future tax rates.
WSJ tax reporter Laura Saunders will bring us up to date on Roth retirement accounts after the break.
Access to affordable credit helps me pay my employees, but I don't really need it. The inflation is killing me. But who cares? Big retailers are making record profits. That's why we support the Durbin Marshall credit card bill. See? Banks and credit unions help small businesses make payroll. This bill would cut the vital resources they need. While increasing megastore profits. They deserve it, don't they? Tell Congress, stop the Durbin Marshall money grab for corporate megastores. Paid for by the Electronic Payments Coalition.
People who have Roth, IRA, and 401k accounts can boost their balances before a set of tax cuts expires next year. Wall Street Journal tax reporter Laura Saunders joins me. Laura, how do Roth retirement accounts differ from traditional versions?
Well, there's a really big difference. Money going into traditional IRAs and 401ks is tax deductible, but it's taxable coming out. Now, with Roth IRAs and 401ks, you have to pay tax on the dollars before you put them in, but they're tax-free coming out. Even if you, say, buy some super stock, Apple or Google, the new one of the future, and your position grows a lot, none of that growth is taxable.
How would somebody sign up for a Roth account?
One way is to do it yourself with an individual account. You go to a brokerage firm like Schwab, Fidelity, Vanguard, some other broker, or you do it through a bank, but you just sign up for an account and then you figure out how you're going to put money into it.
What immediate impact could the 2025 expiration of 2017 tax cuts have on Roth accounts?
The other thing you can do is sign up through your employer for a 401k plan, and that allows for larger contributions, but your employer offers that plan and you opt in.
Are there restrictions on how much people can contribute to a Roth?
Oh, yes, absolutely. If you're doing a Roth IRA, the top limit per year is $7,000 or $8,000, depending on your age. And you can't put money into a Roth IRA if you have more than a certain income. It's roughly $140,000 for single filers and $230,000 for married filers. So that can be a limit for people who are super savers and super earners as well.
How about a Roth 401k?
Oh, those limits are much higher. It's about $22,000 if you're under 50 and about $30,000 if you're 50 or older.
In your column, you mentioned the 2017 tax cuts, and they're set to expire in 2025. Is that a definite that they're going to expire?
Yes, it is absolutely definite that the laws expire at the end of 2025. And if Congress doesn't act, they will expire.
Have there been efforts to extend them?
Yes, but we don't know what's going to happen. The Republicans want to extend the 2017 tax cuts in general. The Democrats want to extend them for people making less than $400,000, but perhaps raise taxes on people making more than $400,000. But, of course, this doesn't solve the problem of the money that they lose and the deficit, but that's what the battle lines are.
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