Written by: Ted Parker
What is better than “TAX DEFERRED”? TAX FREE is better with this strategy!
There are hushed conversations going around Silicon Valley about a certain Venture Capitalist who has amassed a substantial fortune inside their ROTH IRA-an amount in excess of $1 Billion. After converting the IRA to a ROTH, paying the current income tax, the ROTH then invested in a variety of private equity shares that eventually went public or were acquired for a substantial premium.
Imagine the impact of not only the TAX FREE preservation of the capital gain-but the even greater benefit of the TAX FREE INCOME WITHDRAWALS at retirement.
That’s correct, if you take a qualified withdrawal from your Roth IRA, you’ll get all the earnings — and all your contributions — tax-free.
Furthermore, unlike IRA distributions, Roth IRA distributions do not affect your Social Security benefits in any way. Not only are they not considered earned income by the Social Security Administration, they are not included in your adjusted gross income in determining combined income by the IRS. This means your ROTH withdrawal itself will not push you into a higher tax bracket.
Originally Roth IRAs were designed to offer after-tax savings and provide the biggest benefits to people who anticipate paying a higher tax rate in retirement. Many current 401k company plans currently offer a ROTH 401k option.
If you think there is a chance you will be in a higher tax bracket in retirement, or that taxes in general will be higher than they are today, consider hedging your bet and funding a ROTH IRA. Those of you who work for a private company and own private stock, or have access to private stock, may want to consider the strategy.
There are numerous “ROTH CONVERSION” calculators available on the web, to help you decide if a ROTH CONVERSION makes sense. A service offered by Charles Schwab helps you determine if a conversion makes sense: Roth IRA Conversion Calculator
Millennium Trust Company can help if you currently own shares of a private stock-UBER, LYFT, Addepar, Flipborad, One Medical, HotelTonight-or any of the growing number FinTech companies. You too could become a member of that elite group with a “MEGA ROTH”.
Related: Where All Your Money Goes
I have worked with several investors on this strategy in the Valley. Here is MTCs guideline of the process for approving the stock for custody:
If you already have a Traditional IRA at Millennium, in order to convert to a Roth IRA, you need to complete our Roth Conversion form. If you change your mind about your Roth IRA conversion, you have until the tax return due date, plus extension to undo the conversion. This is called a “Recharacterization”.
And if you are an Registered Investment Advisor who works with clients who are owners or employees of these private companies with access to equity, you can help them tremendously by presenting this strategy.
Millennium Trust Company has 4 solutions for Advisors to include this account as part of your client’s portfolio:
1. Utilize your Portfolio Management System’s investment tracking and report tool
2. Pull secure reports at any time since we provide the data on a daily basis
3. See your clients entire holdings through our Advisor Portal
4. A dedicate service team assigned to you
I work from my office in Southern CA with Investment Sponsors and Advisors in California, Oregon, and Washington with custody matters and strategies involving the growing interest in Alternative Investments.
Millennium Trust Company does not provide tax or investment advice. As with all tax matters please consult with your CPA or Tax Specialist.
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