Which IRA Is Better For Your Money?
The most common question asked around tax time every year is: are you better off investing your money in a Traditional or Roth IRA? The answer to that question is based on your personal financial situation. When will you need the money? How much will your income be? Do you need any tax deductions? Each type of IRA has its advantages and disadvantages so we will detail the differences and let you decide.
Your Money Invested In A Roth IRA
- You pay income taxes on your contributions now
- You will not pay taxes when you make withdrawals at retirement
- Contributions are not tax deductible
- Your money will grow tax free
- After your money is invested in a Roth for 5 or more years withdrawals before age 59 ½ can be tax and penalty free
- There are no minimum distribution requirements
Your Money Invested In A Traditional IRA
- You pay income taxes later at retirement when you make your withdrawals
- Your contributions may quality as a tax-deduction
- Your money grows tax-deferred
- Withdrawals before age 59 ½ can be taxed and you could pay penalties
- Your money is subject to minimum distribution requirements
- Brokerage firms, insurance agents, mutual fund companies or banks can open an IRA for you. You have until April 15th to open and contribution to one.
- Both types of IRA’s have the same contribution limits.
Contribution Limits For 2012
- Under Age 50, up to $5000
- Over Age 50, up to $6000
Contribution Limits For 2013
- Under Age 50, up to $5500
- Over Age 50, up to $6500
Deciding whether to invest in a Roth or Traditional IRA means that you are thinking about your retirement and that is a very positive financial position to be in. Now just work out the details and you’re good to go.