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IRA Financial Blog

How The Roth IRA Can Help Supplement Your Social Security

How to Supplement Your Social Security with a Roth IRA

Wondering how the Roth IRA can help supplement your social security income in retirement?

Key Points
  • A Roth IRA Can Provide Tax-Free Income
  • You Can Self-Direct Some Roth IRAs
  • Social Security Won’t Provide Enough

Social Security Income For Retirees

Many Americans are relying on Social Security to provide for them in their retirement. Taken at the standard age of 70 it is possible to take distributions as early as age 62, but there will be less funding available to you. Social Security is a fund you’ve paid into since you began working “on the books” and provides a safety net to the public approaching retiring age.

The actual amount of retirement benefit you receive will be determined by your age, contributions, and other concerns located on the Social Security Administration’s website. And while millions of Americans may not get the amount they need, there are ways that you can augment your retirement income, and hopefully you’ve already gotten started on setting it all up for yourself.

Because Social Security benefits are taxed on income, it can be advantageous to lower your income as legally possible, and part of this may lead you to a Roth IRA. Why a Roth IRA? Withdrawals from a Roth IRA don’t count toward your adjusted gross income but withdrawals from traditional IRAs and 401(k) accounts do. 

What Is A Roth IRA?

There are a number of types of retirement accounts available for savers, with options depending on whether one is self-employed or work for someone else. The most common types of accounts are the 401(k) plan and the IRA plan, where you work for someone else and the investment firm contracted by the company invests your money, along with that of all the others participating in the plan.

Unlike a traditional IRA, a Roth IRA allows you to save after-tax money for retirement. There is no upfront tax-break (since you have already paid taxes), however, all qualified Roth distributions are tax free. There are no annual taxes for your retirement plan. If you can leave the funds in the plan until you reach age 59 1/2, and any Roth IRA you have has been owned for at least five years, you never pay taxes.

How Can You Use a Roth IRA To Supplement Your Social Security

By establishing a Roth IRA or Self-Directed Roth IRA, you are setting up your future self for potential financial success. The potential to keep your Roth IRA earnings past the traditional retirement ages of 65 or 72 & 1/2 allow you to leave your funds where they are for longer periods as there are no required minimum distributions. This means that there is a greater opportunity to leave money or assets to your heirs without disrupting your retirement plan.

You can also self-direct in your Roth IRA if you start a Self-Directed Roth IRA. If you chose the Roth IRA route, you can always self-direct the plan. This means you can invest in virtually anything you want with your retirement funds. This allows you to diversify your holdings, invest in alternative assets, such as cryptocurrency, real estate, and precious metals; and, hopefully, you’ll see a better rate of return than you would get when you are forced into traditional investments only.

Related: Keys to Maximizing Social Security

Your Ideal Retirement

Whatever your ideal retirement looks like to you, it’s vital that you plan far enough in advance to make your dreams happen. No matter if you want to cruise the world for the rest of your days, or you want to open an animal sanctuary with your retirement income.

Planning with a Roth IRA can make your retirement work for you. By being better able to plan out the income you will have, you will be better able to manage the remainder of your funds so that they are doing what you would like them to do. Your retirement money may be limited. It’s vital that you remain as constant as possible so that your retirement needs are met and desires can be fulfilled.

So get the upfront deductions of a traditional retirement plan, but you can save in a Roth also so you can use that as your main income when you retire, supplementing Social Security. You can then take about RMDs that must be taken from traditional plans, but that is only a small percentage each year once you turn 72.


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