Traditional IRA vs Roth IRA

Should you invest your hard earned dollars into a Traditional IRA or a Roth IRA? Both offer tax breaks. However, the difference is how and when you get the tax breaks. So, which way should you go? Check out the key features of a Traditional IRA and Roth IRA.

Roth IRA

  • Tax-free growth and tax-free qualified withdrawals.
  • Contribute at any age.
  • Your income affects how much you can contribute. 
  • You won’t pay taxes when you withdraw your contributions, and you won’t pay federal taxes on your earnings, as long as the five-year aging requirement has been met.
  • If you make withdrawals before you’re 59½, you might have to pay taxes on your earnings plus a 10% additional tax.
  • RMDs do not apply during your lifetime.
  • Contribution limits – 2019: $6,000 ($7,000 age 50 and older) 2020: $6,000 ($7,000 age 50 and older)
  • Contribution deadline – Monday, April 15, 2020 (for the 2019 tax year)

Traditional IRA

  • Tax-deferred growth and tax-deductible contributions.
  • Contribute until you’re 70½
  • Your income does not affect how much you can contribute.
  • You will pay taxes when you withdraw your pre-tax contributions and when you withdraw any earnings.
  • If you make withdrawals before you’re 59½, you might have to pay a 10% penalty.
  • RMDs must be taken starting in the year you turn 70½.
  • Contribution limits – 2019: $6,000 ($7,000 age 50 and older) 2020: $6,000 ($7,000 age 50 and older)
  • Contribution deadline – Monday, April 15, 2020 (for the 2019 tax year)

My take

I say get advice from a trusted financial advisor to determine factors like when you plan on retiring, SSN benefits and your income needs during retirement. Each decision is not to be taken lightly and should be reviewed with much deliberation.

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