Roth IRAs are not employer sponsored. Roth IRAs are retirement plans used by individuals who want to save for their retirement outside of their workplace. Contributions are not tax deductible like they are with the IRA traditional. The reason contributions are not tax deductible is because the contributions are made with “after-tax” dollars so that money has already been taxed. With ROTH IRAs you do not get an immediate tax benefit like you would with some of the other IRA’s. But, with Roth IRAs, at withdrawal you do get a tax benefit – – – the contributions at withdrawal are tax free. The earnings on the account are taxed because they have not been taxed yet – but the amount that you have contributed is tax free. When your income reaches a certain level you are no longer eligible to contribute to ROTH IRAs.
IRA traditional is also not employer sponsored. Similar to Roth IRAs, the IRA traditional is a retirement savings plan used by individuals. Contributions can be tax deductible – so you can get an immediate tax benefit (unlike ROTH IRAs). At withdrawal, your contributions and earnings are taxed. A big disadvantage of the IRA traditional is that withdrawals must begin at age 70 ½. The withdrawal amount is calculated by a rather complicated IRS formula. Another disadvantage of the IRA traditional is that if you start withdrawals before 59 ½ the IRS will assess a 10% penalty. You also cannot take any loans from an IRA traditional.
We have listed only a few of the rules and benefits of the different IRA’s available on the market today – the SEP IRA, the Simple IRA , Roth IRAs and the IRA traditional. For more detailed information, contact your financial advisor.