MINT HILL, NC – Last week we covered qualified retirement plans and this week we will discuss IRA options. The two most popular types of IRAs are Traditional and Roth. Which is better? One isn’t better than the other, they simply work for people in different ways.
Traditional IRAs are generally funded only with before-tax dollars. Withdrawals are generally fully taxable when you take them. If you take withdrawals before age 59 ½, they may be subject to a 10% federal additional tax. Required minimum distributions (RMDs) are required and start at age 72 (age 70 ½ for IRA owners born before June 30, 1949.)
Roth IRAs on the other hand, are funded only with after-tax dollars and generally either through contributions or traditional IRA conversions. Distributions after age 59 ½ are completely income-tax-free – as long as the owner has held the IRA for five years. There are no required minimum distributions during the owner’s life, however, certain RMD rules do apply to beneficiaries.
I get this question a lot, “Does it make sense for me to choose a Roth over a Traditional?” My answer is always, it depends. Think about your tax rates now versus later. If you want to know what I mean by that please feel free to reach out.
Let us help you find your clarity of purpose!
Portions of this article were written by Allianz for use by your local Cambridge Investment Research Financial Advisor.
To discuss further, please contact me at (704) 817-4480 Option 2, or by email at firstname.lastname@example.org.