Roth IRA Vs. Traditional IRA. Know The Difference.
Saving for retirement is important, yet many of us have found reasons to put it off. There are many ways that you can start to save money for your future now. One great way is to open an Individual Retirement Account (IRA). Launch FCU offers two types of IRAs; Traditional IRA and Roth IRA. If you do not know the difference between a Roth IRA and a Traditional IRA, you are not alone. This post will help you understand the differences, and allow you to pick the best option for you and your financial future.
What Is An IRA?
An IRA is a personal retirement savings plan that may offer you tax advantages. (Consult your tax adviser). Congress developed IRAs to encourage retirement savings by individual tax payers.
If you set up a Roth IRA, you make contributions with money you already have paid taxes on. Then, your money has the potential to grow tax-free. In addition, a Roth IRA provides tax-free and penalty-free contribution withdraws for any reason, at any time. You can withdrawal dividend earnings tax-free after you have met a five-year holding period, and withdrawal funds for a qualified reason.
Roth IRAs do not have an age restriction in order to start contributions, and do not have a required minimum distribution. If you perform a non-qualified withdrawal, it is subject to taxation of earnings, and a 10% additional tax. There are income limits that apply to make contributions towards a Roth IRA. Consult your tax adviser for more information on taxes and withdrawals, and income limits for making contributions.
A Traditional IRA operates differently in a few ways from a Roth IRA. First, you must be under the age of 70.5 at the end of the tax year to open or make contributions to a Traditional IRA. You must also start taking the required minimum distributions at the age of 70.5. For some, contributions may be tax-deductible, consult your tax adviser for eligibility. In addition, there are no income restrictions on your contributions. If you wish to withdrawal the money from your Traditional IRA before the age of 59.5, there may be a 10% early withdrawal penalty. Consult your tax adviser for all taxes and penalties that may apply.
Easy Roth IRA vs. Traditional IRA Comparison Chart
|Traditional IRA||Roth IRA|
|Roth IRA vs. Traditional IRA||Contributions with money that you may be able to deduct on your taxes.||Contributions with money you have paid taxes on.|
|Tax-deferred growth||Tax-free growth.|
|Must be under the age of 70.5 to make contributions.||No age restrictions to make contributions.|
|Must start taking required minimum distributions after age 70.5.||No minimum required distributions during lifetime of the original owner.|
|Withdrawals before the age of 59.5 may be subject to a 10% early withdrawal penalty.||Non-qualified withdrawals may be subject to a taxation of earnings, and a 10% additional tax.|
|Pay taxes on withdrawals.||Tax-free and penalty-free contribution withdrawals for any reason, at any time. Can withdrawal dividend earnings tax-free after five-year holding period, and for a qualified reason.|
|No income restrictions on contributions.||Income restrictions on contributions apply.|
|Both Roth & Traditional IRAs: The maximum contribution per year is $5,500 for those under the age of 50, and $6,500 for those over the age of 50. The maximum yearly contribution amount is not to exceed the amount of your eligible taxable income.|
- 5 More Features Of Our New Digital Banking Suite
- New Digital Banking Suite Coming Fall 2017
- Vacation Booking Mistakes
- 12 Savings Tips For Summer 2017
- Understanding A HELOC Loan
- Home Loan & Home Buying Myths To Ditch Today
- 7 Credit Card Tips You Don’t Want To Miss
- How To Spot A Phish Behind A Phishing Scam
- Four Reasons You Should Consider Refinancing A Car Loan
- How To Choose A Checking Account That Will Save You Money
- A Beginners Guide To Saving Money
- 6 Times It Makes Sense To Apply For A Personal Loan
- Save On Your Car Loan In Melbourne With These Tips
- Cosigning A Loan-Understanding The Risks & Potential Benefits
- Teach Your Teen About Credit: It’s Not Too Soon
- Avoid Tax Fraud In 2017
- Be Smart About Your Gift Cards
- Share These Money Facts With Your Friends
- Roth IRA Vs. Traditional IRA. Know The Difference.
- 13 Cheap Ways To Prevent Burglary This Holiday Season
- September 2017
- August 2017
- July 2017
- June 2017
- May 2017
- April 2017
- March 2017
- February 2017
- January 2017
- December 2016
- November 2016
- September 2016
- August 2016
- July 2016
- June 2016
- May 2016
- April 2016
- March 2016
- February 2016
- January 2016
- December 2015
- November 2015
- October 2015
- September 2015
- August 2015
- July 2015