Roth Ira Vs A Traditional Ira - Both Have Benefits!

Roth Ira Vs A Traditional Ira - Both Have Benefits!

By:




Retirement plans are one area that people tend to not do enough research on before they set one up. For most people who are employed by someone else and working for wages there are basically two types of accounts to choose from: A Traditional IRA or a Roth IRA.

A Traditional IRA - If you choose this plan, you deduct your initial contributions off your taxes, so it reduces your income tax burden for that year. If you contribute $3500 it reduces your reportable income by $3500 so it's a nice dollar for dollar deduction. Tax deferred growth is the 2nd big advantage, you don't have to pay any taxes on the capital gains or interest earned in this account until you reach retirement. This means that your balance can grow faster because all the money your money is working for you instead of having to be withdrawn for taxes. he downside of making traditional ira contributions is that you won't be able to withdraw the money until age 59 1/2 without incurring a penalty and when you do make withdrawals they will be treated as taxable income.

The ROTH IRA is similar to a traditional ira when it comes to investment options and limits but the primary difference is that your contributions to a Roth IRA are not tax deductible. This means that any contribution made to a Roth IRA will not reduce your current tax burden which is the only drawback for this type of plan. The back end benefits are pretty incredible though as your money gets to grow tax deferred and you pay no income tax on the funds when you withdraw them. By forgoing the immediate tax benefit, you end up with tax free income at retirement!

With both types of IRAs the contribution limits are $5000 for people less than 50 and $6000 if you are older than that by the end of the year you want to make the deposit. Note: If you or your spouse currently have a retirement plan other than this IRA you may be subject to Modified Ajusted Gross Income limitations for both IRA or Roth IRA contributions so be sure to check the sites below.

About the Author:
You can visit our web site for all the IRA Rules as well as the Roth IRA Rules as both have their own set of Modified AGI limitations.



Article Originally Published On: http://www.articlesnatch.com


Tags: ,

|

Loading...
Related....
Videos...

Recent Investing Articles

Comments

Still can't find what you are looking for? Search for it!

Loading

Site Navigation:

Copyright 2005-2011 ArticleSnatch, LLC - All Rights Reserved.
Privacy Policy | Terms of Service.