Secrets of the Roth IRA

It would be a mistake to consider the Roth IRA (or Designated Roth account) merely for the income tax-free qualified distributions. There’s more, much more, to the Roth and we’ll reveal a condensed thumbnail of just three commonly overlooked benefits.

1) Minimize the 3.8% Net Investment Income Tax (NIIT)

  • Because the NIIT is based in part upon adjusted gross income, qualified Roth distributions (as opposed to taxable distributions) may serve to reduce the NIIT for certain clients.

2) Reduce income taxes on Social Security income

  • Sadly, if not ironically, the IRS requires inclusion of as much as 85% of a client’s Social Security income based upon “combined income”.  Qualified Roth distributions will not increase combined income under this formula. Within thresholds, the lower a client’s combined income, the more opportunity to exclude Social Security income from income taxes.

3) Cut Medicare Part B premiums

  • These premiums are “means tested” which requires higher income participants to pay more in premiums than lower income participants. The exclusion of qualified Roth distributions from gross income can, for affected clients, dramatically cut the monthly Medicare Part B premium.

So few clients know these benefits that they may as well be called secrets! Savvy financial advisors may find these “secrets” are powerful additions to their repertoire.

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