Professors, is an IRA Right for Your Retirement Goals?

Author: Natalie Pine

As a professor, you probably are already actively saving in your employer retirement plan. However, there is another, often-overlooked, avenue for additional retirement savings, which is an IRA (Individual Retirement Account). An IRA enables you to take advantage of special tax provisions to save even more for retirement.

There are two different types of IRA: traditional and Roth. Both serve different purposes, so it’s vital to pick the one that fits your retirement goals.

The primary difference? Taxation.

  • A traditional IRA contribution gives you an upfront tax break (assuming your income does not exceed a certain threshold). Then your money grows tax-deferred. You pay income tax on all withdrawals in retirement, however. If you think your income is low relative to past or future earnings, a traditional IRA might be a good choice.
  • Roth IRAs don’t provide any current year tax break, but by contributing after-
    tax dollars, all withdrawals in retirement are completely tax-free.

Which IRA is Right for Most Professors?

This is dependent on your situation and your goals. As a firm specializing in the needs of university professors, we see many clients end up with large retirement account balances. While this is good news, it can create a significant tax burden once you retire. With talk of raising taxes, this can be a source of worry.

That’s where the Roth IRA excels; you can create a source of tax-free withdrawals in retirement. This can help lower your taxes and can give you more overall control to take advantage of tax-saving strategies. There’s one problem, though; Roth IRAs have strict income limits. Only those who earn less than $144,000 (single filers) or $214,000 for married couples can contribute directly.¹

Traditional IRAs have some income limits as well. If you’re a high earner, you may not be able to deduct your IRA contributions, either.

The Backdoor Roth IRA for High Earners

Fortunately, there is another option even if your income disqualifies you. You can use a Backdoor Roth IRA strategy. But you need to work closely with an experienced financial planner on this; otherwise, you may subject yourself to penalties. Also, don’t wait too long, as Congress has discussed ending this loophole.

Don’t Forget IRA Catch Up Contributions

Once you’re over 50, the tax laws let you contribute another $1,000 every year to either type of IRA.² As the name implies, this is a great way to “catch up” on your savings and increase your balances.

Whatever you do, don’t forget about an IRA. Especially with future tax increases likely, this humble retirement account might help you achieve a more tax-efficient future.

¹ https://www.irs.gov/newsroom/irs-announces-changes-to-retirement-plans-for-2022

² https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-catch-up-contributions

Awards & Affiliations

Anyone can cease working, but those who retire successfully have a map and plan. Briaud is your mentor and counselor. So that you too may have a reliable guide, connect today with our financial advisory team.