Deciding whether to choose a Roth IRA or a Traditional IRA is an important decision and can have major financial consequences. Both options, however, are excellent ways to save for retirement. Let's look as some of the biggest differences between the two. You can always contact us so that we can refer you to a financial planner for these decisions. Give us a call at (805)946-1550 if you would like some advice.
- Your contributions are not tax deductible
- There is no mandatory distribution age
- Earnings and principal are tax free if you follow all rules and regulations
- Not everyone can open a Roth IRA. Individuals with modified adjusted gross incomes
above $137,000 are not eligible. The figure for married couples filing jointly is $203,000
- Principal contributions can be withdrawn any time without penalty (certain conditions do
- Depending on your level of income, your contributions may be tax deductible
- You can make withdrawals without penalty beginning at age 59 1/2. Deductions are
mandatory when you reach the age of 70 1/2
- When you make withdrawals from the IRA, taxes must be paid on earnings
- There are no income restrictions on opening an IRA, anyone can do so
- Funds withdrawn before age 59 1/2, including principal contributions, are subject to a 10
percent penalty (although there are exceptions to this rule)
For many individuals and couples, the Roth IRA is the better choice, thanks to its tax-free distributions and greater flexibility. As noted above, however, not everyone is eligible to open a Roth IRA. And of course, every person's situation is unique. We invite you to contact us at (805)946-1550 to discuss your concerns and goals before making this important decision.