Roth's versus traditional IRA's
The biggest difference between a Roth's and the traditional IRA is when you want the tax break. If you are eligible for both a Roth IRA and a Traditional IRA, then you can have benefits by either choice. Deciding which choice will be more beneficial to you is what will be important.
The two different types of IRAs that are available are the Roth IRA and the Traditional IRA. Here is a brief definition of each of those types of IRAs and the characteristics that you should look at when choosing which of these will work for your savings needs.
Either type of IRAs are great for savings because they both have benefits that will help secure your future financial survival, even if you can not put aside the full amount of IRA allotted amount per year.
Traditional IRA characteristics are:
1. The traditional IRA is a program set up for working adults and their non-working spouses that allows for up to a specific amount annually of their income to be put into an account.
|
|
2. The Individual Retirement Account or IRA is set up for tax deductions dependant on the yearly income, and the use of a company sponsored retirement plan. (Income has to be less than $43,000 yearly single or $63,000 joint to be able to contribute to an IRA)
3. Up to $4000 under the age of 50 and $5000 over the age of 50 per year can be put into the IRA. This amount increases as time goes by also.
4. Withdrawal of the money in the IRA can be removed as early as 59 ½ with out penalty, and must be starting to be removed by 70 ½.
5. If early withdrawal of an IRA occurs than a 10% penalty will be applied.
6. IF you are not covered by a retirement plan through your employer, then the IRA is fully deductible from your income.
7. Removal after retirement is tax-free.
Roth IRA characteristics are:
1. The Roth IRA is an IRA in which the distributions may be tax exempt. Using qualified distributions from a Roth IRA will be tax-free.
2. The same amount may be deposited annually in a Roth IRA, up to $4000 under the age of 50 and $5000 over the age of 50.
3. Tax-free withdrawals occur as long as the contributions have been left in the account for five years or more.
4. This type of IRA allows for specific reasons for withdrawal as long as those specific reasons are met. Age 59 ½, death, disability, or first time home purchase.
5. Income made over the maximum traditional IRA of $43,000 single and $63,000 married; you can still contribute into a Roth IRA up to a certain income level. The amount is $110,000 single, and $150,000 joint.
6. You can add money to a Roth IRA at any age. This includes after the age of 70 ½, where with a traditional IRA you have to start withdrawing at that age.
7. Removal after retirement is tax-free
Each of these options for saving for your future has their benefits. You just need to decide which benefits will fit the needs you and your family will have for savings. Your income, need and retirement plan will dictate some of the decision options, however in many cases the choice is yours. That is the difference between the Roth's IRA and a Traditional IRA, from here you decide when you need the tax break and when you want to be able to obtain your money.
