Traditional IRA vs. Roth IRA

Traditional IRA vs. Roth IRA

Donald M. Fink has over 40 years’ experience in helping clients with investments and increasing their retirement portfolio. If you haven’t already opened a Roth or Traditional IRA for your savings, you should probably do so right away. An IRA provides several benefits to everyone from young individuals who are looking to find ways to start saving, to older people who are looking to get the most out of their money in retirement. The real question, however, is which one should we choose when looking to open an IRA account. The major differences that you need to look out for when trying to choose between the two types of IRAs are the contribution limits, income limits and the tax treatment that each account gets.

Contribution and Income rules

A Roth IRA and traditional IRA had the same contribution amounts for 2016, if you are below 50 years of age you can contribute $5,500, otherwise you can contribute $6,500. For either of these contribution limits, it doesn’t have to do with income but your age. However, only the Roth IRA limits your ability to contribute if you are making over a certain amount of money, but the traditional IRA does not. If you, as a single income earner, make over $132,000, you are not able to contribute to the Roth IRA at all. If you, as a couple with your partner, make over $194,000 you are not able to contribute to the Roth IRA.

Tax Treatment and Withdrawal rules

With a Roth IRA, you can withdraw any of your contributions 5 years after they have been made, without taking in an age factor. If you do not wait that 5 years and are under 59 ½ years of age, you will be subject to taxes and penalties, otherwise you will be paying only taxes. A traditional IRA is a bit different because you are not able to withdraw your contributions (barring special circumstances) until age 59 ½. After that age, you can withdraw but will be paying income tax on your withdrawal. After age 70, you are required to withdraw your traditional IRA as monthly payments or a lump sum.

A traditional IRA has tax breaks in the year of contribution while a Roth IRA has zero tax breaks until you retire. Once you retire you can withdraw both contributions and earnings. With a traditional IRA you receive tax breaks in the year of contribution but all withdrawals, no matter at what age, are taxed like your regular income.

Both IRA’s have their benefits but depending on your income and circumstances, you should speak to a financial advisor about it.

At the Advisory Co, we have an impeccable record of providing sound financial advice to our clients. Call us today at 702-869-1919 and let us get you setup with a retirement expert.

Donald M Fink has been advising and helping high income individuals and business owners with strategies for over 40 years. He continues to consult with private clients in the areas of estate planning, wealth management and asset preservation and to this day maintains Life & Qualifying membership and Honor Roll status in the Million Dollar Round Table (MDRT).