The Basics

When’s the best time to begin working with an advisor?

There is a lot of good financial information readily available these days. Unfortunately, there is plenty of not-so-good information as well. The key is recognizing the difference, and knowing when you need to go beyond what you can learn through all the books and blogs.

From a retirement standpoint, a financial advisor could be helpful to those who are truly serious about investing in the future — enough to work with an advisor to formulate a plan and begin making contributions. Advisors can also be helpful to those who are already saving for retirement but need guidance in making adjustments to their plan.

There is no magic asset value at which you need an advisor. What does your gut tell you? If you feel like professional guidance would help with your retirement investing, talk to an advisor.

What does it cost to work with an advisor? Are they all fee-based?

Not all advisors are fee based, and costs can vary from one to another. Be sure you understand how your advisor will be compensated, should you decide to work with them. Common forms of compensation include, but are not limited to, asset-based fees (e.g., you pay 1%-2% per year on your assets under management) and commissions (i.e., you pay a commission when an investment is made).

Am I eligible for a traditional IRA?

More than likely, yes you are. The only requirement is that you have taxable compensation (such as income from your job). However, whether your contributions are tax deductible depends on your income and whether you have access to a work-related retirement account. See “What are the limits on IRA deductions” below.

Setting up an IRA is easy. First, decide who you are going to list as your beneficiary. Then, simply select an institution (such as a bank, insurance or investment company), complete some paperwork and make an opening deposit (often as little as $50). The paperwork will require you to select specific investment vehicles to fund your IRA, but your advisor can walk you through those steps.

Am I eligible for a Roth IRA?

It depends entirely upon your modified adjusted gross income (MAGI) for the year, your income tax filing status, and whether you earned income during the year (typically, wages or self-employment income).

2023 and 2024 Roth IRA Income Limits

Filing status	2023 Modified AGI	2024 Modified AGI	Contribution Limit
Married filing jointly or qualifying widow(er)	Less than $218,000	Less than $230,000	For 2023: $6,500 ($7,500 if you're 50 or older). For 2024: $7,000 ($8,000 if you're 50 or older).
	$218,000 to $228,000	$230,000 to $240,000	Reduced
	$228,000 or more	$240,000	Not eligible
Single, head of household, or married filing separately (and you didn't live with your spouse at any time during the year)	Less than $138,000	Less than $146,000	For 2023: $6,500 ($7,500 if you're age 50 or older). For 2024: $7,000 ($8,000 if you're 50 or older).
	$138,000 to $153,000	$146,000 to $161,000	Reduced
	$153,000 or more	$161,000 or more	Not eligible
Married filing separately (and you lived with your spouse at any time during the year)	Less than $10,000	Less than $10,000	Reduced
	$10,000 or more	$10,000 or more	Not eligible

Roth IRA or traditional IRA: Which is better?

It all depends upon your personal goals and circumstances. If you can make deductible contributions and want to lower your taxes while you're still working, a traditional IRA might make sense. Are you looking to preserve assets for your heirs? Minimize taxes during your retirement? If so, a Roth IRA may be a better choice. Here’s why:

Both traditional and Roth IRAs feature tax-deferred growth of earnings. Both allow you to contribute up to $7,000 in 2024 of earned income, plus an additional $1,000 "catch-up" contribution if you qualify. Both allow certain low- and middle-income taxpayers to claim a partial tax credit for amounts contributed. But that’s where the similarities stop.

With a traditional IRA, anyone with earned income can contribute the maximum $7,000 in 2024 (plus catch-up if eligible). Whether you’re allowed to deduct those contributions, however, will depend upon your annual income, your filing status, and whether you or your spouse is covered by an employer-sponsored plan. Any distribution will be subject to income taxes to the extent that the distribution represents earnings and deductible contributions. With a traditional IRA, you must start taking annual distributions at age 73, but if you draw money out before age 59½, you may pay a 10% early withdrawal penalty.

There are no age limitations for contributing to a Roth IRA. You can contribute as long as you have taxable compensation and qualify. Your income and tax filing status will determine your ability and the amount you’re able to contribute.

Roth IRAs are not tax deductible. However, you’re not required to take distributions from a Roth IRA at any age, which gives you more estate planning options. Also, qualified withdrawals aren’t subject to income tax or the early withdrawal penalty if certain conditions are met. Non-qualified withdrawals will be subject to a 10% penalty tax but only on the earnings portion of the withdrawal.