Traditonal IRA or Roth-IRA?
When planning your retirement, do you choose a traditional IRA or a Roth IRA? Retirement investing is essential for a secure future, and choosing a traditional IRA or a Roth is no exception. But how do you know what type of account is right for you? Both the Traditional IRA and the Roth IRA allow retirement growth, but the net result may surprise you. Here we will explore both the Traditional IRA and the Roth IRA and you can be the judge as to which account is best for you.
The traditional IRA is a retirement account that allows contributions up to $5,000 a year if you are younger than 50 and up to $6,000 a year if you are over 50. The money deposited in this account grows tax deferred until you begin withdrawing funds. Once you are eligible for withdrawals, you will pay taxes on this money. Tax penalties are steep for withdrawals before age 59 1/2. You get taxed 10% immediately upon withdrawal and again when you file your yearly returns. So don’t touch this money until you retire.
The Roth IRA also allows contributions up to $5,000 a year if you are younger than 50 and $6,000 if you are over 50. But unlike the traditional IRA, the contributions in a Roth are tax-free upon withdrawal. You do, however pay taxes on your initial contribution, but get to enjoy your earnings tax free upon retirement. But remember, participation is limited to those married couples earning $176,000 filing jointly or singles earning $120,000 a year. So if you fall outside of this range, you can still open a Traditional IRA, just not a Roth. Another great thing about the Roth IRA is that you can withdraw your original contributions up to the first five years tax free for a home purchase or medical expenses with no tax penalty.
If you qualify, the Roth IRA is the way to go. Open one online or with a brokerage firm. The long term benefits of having a tax free account at retirement is probably the single best investment available.