One of the things people most often ask me is whether they should be in a Roth IRA. Usually, my answer is something like “I have no idea” or “Why do you ask?” I have noticed that my response often confuses and frustrates people.

First, let me say that I love Roth IRAs, just like I love traditional IRAs, 401(k)s, 403(b)s and every other plan that gets people saving for their retirement. I also have a liking for Roths – in the correct circumstances, and that’s the point.

Often, people will come to my office with a hodgepodge of stuff they’ve accumulated over the years. A fairly typical scenario would be:

$350,000 in a 401(k).

An IRA or two with another $100,000.

A Roth or two with $10,000 in each.

A small pension of $800 per month

A term life policy with $100,000 to $200,000 of coverage.

Perhaps even a variable annuity or two as well.

Most often, the collection of items will have come from several people with whom they’ve met and discarded over the years. They may or may not have a will or other legal documents.

However, what they most certainly won’t have, nine times out of ten, is a plan.

Now, they think they have a plan, and it’s this shoebox full of stuff they bring in. However, they’ll have no idea how these things fit together or when and how to start using them to their best advantage.

Because they are used to thinking or operating this way, the thing they want to ask me is whether they should be pumping up their Roth contributions. Or buying another annuity. Or whatever.

What they should be asking is things like “What should we be doing to prepare for inflation?” Or market downturns; or long-term care needs; or if we need a new roof, car or septic tank; or if one of us dies prematurely; or if one doesn’t and both of us live for 40 years … What’s the plan to keep from running out of money or minimize our taxes, etc.?

So first, the Roth. I love Roths! I love the fact you can grow your money tax-free for as long as you want, that you don’t have to take RMDs if you don’t want, and that you can pass them tax-free to your heirs when you pass.

I also love the fact that they don’t impact your Social Security taxes and that you can convert as much of your traditional tax-qualified savings to them as you want – all you have to do is pay the taxes.

And best yet, I love the fact that we have a way of doing this that can recoup as much as 100 percent of the taxes you have to pay when converting.

But even more important than the Roth is the plan. A Roth doesn’t just automatically save you taxes; it’s got to work in tandem with your other assets to work.

Unless you know the impact that a specific source of tax-free money is going to have on your future retirement plan, how can you possibly determine if a Roth is good for you?

You might find a better alternative in the IRA 590, which can remove all of your qualified money from your estate, paying you nearly twice the income as your RMDs, guaranteed for the rest of your life, and return 100 percent of the full starting value of your account to your loved ones completely tax-free.

Under the right circumstances, this can work much better than a Roth, even the “tax-free Roth” mentioned in the preceding paragraph.

The key to answering these questions is the plan itself. An income plan must begin with the basics and build up from there. We always start with a budget. If you don’t know what you need, how can you possibly know if you have enough?

Next, we look at people’s Social Security and/or pensions, as these are guaranteed streams of income that in most cases will last a lifetime. We like to call these sources of income “know-so” money.

These two pieces of information – how much you need and how much guaranteed, “know-so” income you start with – tell us most everything we need to know in beginning the income-planning process.

Once we have that information, we can start adding pieces to the plan. If an annuity makes sense and helps solve your particular retirement issues, then it may be a good thing.

Same for a Roth – if it makes sense within the context of everything else, then go for it – and be sure to get one of those where you get to recoup your taxes!

But before you go shopping for the individual products, make sure you know what you need and why. No adviser can tell you that unless they’ve worked with you to craft a tailored plan for your specific needs.

If someone wants to move your money into a Roth, annuity – or anywhere else, for that matter – without justifying it within your plan, run the other direction as quickly as you can, because all they care about is your money.

“Free Money Guy” Stephen Kelley can be heard, along with co-host Mark Perkins, on the Free Money Radio Hour at 9 a.m. every Tuesday and Wednesday morning on 1590 AM WSMN in Nashua and Sundays at noon on 980 WCAP in Lowell, Mass. In addition, Steve is heard weekly on the nationally syndicated “America Tonight” with Kate Delaney and is author of the book “Safe Harbors That Can Reduce Taxes, Remove Risk and Protect Your Retirement.” His financial planning practice, Safety First Financial Planners, is located at 33 Main St. in Nashua. He can be reached at 881-8811.

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