Roth IRA and Traditional IRA Comparison

Roth IRAs are the new kid on the block, at least in regards to IRA investment. They can be a bit more complicated than a traditional IRA as they have some very unique rules associated with them. Let’s take a good look at the basic guidelines associated with a Roth IRA.

Whenever you deposit money into a Roth IRA, it’s not tax deductible. Traditional IRAs, for example, can be used as a write-off at the end of the year. Let’s say you deposit $2,000 into your traditional IRA. Well, at the end of the year, you can deduct $2,000 off your income. That sounds like a good deal because you can deposit more money since it’s pre-tax dollars. However, with a traditional IRA, you will be required to pay taxes on any withdrawals you make a future date. And this is exactly what makes a Roth IRA different.

When you deposit money into a Roth IRA, the money has already been taxed. While you’re deposit will obviously be less than what it could have been, the benefit is that the money will not be taxed when you withdraw it at a later date; withdrawals and earnings from a Roth IRA will never be taxed provided you make those withdrawals in accordance with the other rules and regulations associated with the individual retirement account.

Traditional IRAs established by your employer can be converted to a Roth IRA, provided you meet certain qualifications. Check with a licensed agent within your state to learn more.

The main benefit derived from a Roth IRA is that you don’t pay taxes when you make withdrawals. However, you need to be 59.5 years of age before you can make a withdrawal, and there are limitations on how much money you can earn in order to be eligible to create a Roth IRA.

As with any form of investing, you should speak directly with a licensed agent within your state before you make any financial decisions.