Broker Check

Monday Money Report

| December 18, 2023

The Santa rally continued last week as the market posted strong gains, hitting record highs for the year. Inflation is trending in line with expectations, and the Federal Reserve Bank has indicated they may be cutting rates in 2024. The markets have reacted strongly to this news.

If you want to take advantage of a rising market, one great way to invest is inside a Roth IRA.  Named for Senator Roth from Delaware, the Roth IRA has four huge advantages:

First, your money grows tax-free. The money you contribute to a Roth is after-tax, so as long as you follow the rules for withdrawals, all of the growth in the account is tax free. The younger you are, the more helpful this is; which is why we recommend starting Roth accounts at 14.

Second, you can tap into a Roth before retirement. Once you’ve had a Roth IRA for five years, you can withdraw contributions tax- and penalty-free. If you’re a first-time home buyer, you can take up to $10,000 of gains out tax-free as well.  And you can also withdraw money from a Roth to pay for college, which makes a Roth a great way to save for college when you’re not sure if you’ll need the money to pay for school.

Third, with a Roth you don’t have to take Required Minimum Distributions in retirement. If you don’t need the money, you can leave it inside the account to continue to grow. If you do take distributions in retirement, they are not considered income, which means your taxes – and your Medicare premiums – are not affected.

Fourth, a Roth continues to grow tax-free for ten years after you pass away. Any inherited IRA has to be fully paid out to beneficiaries within 10 years. And a traditional IRA also has to pay out Required Minimum Distributions each year. With a Roth, your heirs can let it sit and continue to grow for ten years, then take all the money out tax free.

If you make too much money to contribute directly to a Roth IRA, you may be able to convert money from your IRA to your Roth. And, you have until April 15th to open and fund your Roth for 2023.

Your action item this week is to do a background check on your financial advisor.  Go to FINRA.org, click on Broker Check at the top of the screen, and type in your advisor’s name. Suspensions, fines, and terminations should be considered red flags.

CovingtonAlsina is a registered investment adviser.  Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies.  Investments involve risk and, unless otherwise stated, are not guaranteed.  Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance.