Which IRA is right for you?
An IRA may be a good choice if you are seeking a tax deduction now, your income is too high to be eligible for a Roth IRA, or expect to be in a lower tax bracket in retirement.
A Traditional IRA is your opportunity to make tax-deferred and possibly tax-deductible contributions to your retirement savings.
Traditional IRA Benefits include:
- Tax-deferred growth potential.
- The ability to deduct your contributions (if you participate in a plan at work, your eligibility is based on your income).
- Accepts rollovers from employer-based plans (401K(k), 403(b), or 457 governmental plans).
- Accepts transfers of savings from other.
Traditional IRA things to consider:
- Withdrawals are taxable and included with your yearly income.
- 10% IRS early withdrawal penalty on distributions taken before age 59 1/2 (some exceptions apply).
- Required Minimum Distributions (RMDs) at age 72.
A Roth IRA may be a good choice if you are seeking tax-free withdrawals in retirement, want to avoid required minimum distributions beginning at age 70 1/2, or feel you will be in the same or a higher tax bracket in retirement.
Roth IRAs offer you and opportunity to create tax-free income during retirement.
Roth Benefits include:
- Tax-deferred growth and qualified distributions are tax- and penalty-free in retirement. Distributions are qualified after five years and age 59 1/2, or as a result of your death, disability, or if using the qualified first time home-buyer exception
- The ability to withdraw your contributions at any time, without tax or penalty, if you need the money
- No Required Minimum Distributions (RMDs) at age 70 1/2
Roth IRA Things to consider:
- Your Modified Adjusted Income (MAGI) determines your eligibility to contribute.
- You're not able to deduct your contributions on your taxes, as they're made with after-tax savings.
- Non-qualified distributions of earnings may be taxed and you may owe the 10% IRS tax penalty (some exceptions apply).