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LEARN MORE ABOUT: IRA Accounts

INVESTING IN A GOLD IRA: Gold IRA Account

INVESTING IN A SILVER IRA: Silver IRA Account

REVEALED: Best Gold Backed IRA

When it comes to planning for your retirement, one of the most important decisions you’ll make is how you’ll save and invest your money. Two popular retirement savings options are Roth IRAs and traditional IRAs. While both are designed to help build retirement savings, there are key differences between the two that can impact which one is right for you.

Traditional IRA

A traditional IRA is a tax-advantaged retirement account that allows you to contribute pre-tax dollars. That means your contributions are tax-deductible in the year the money is invested in the account, which can lower your taxable income for that year. The funds in your traditional IRA grow tax-deferred, so you won’t have to pay taxes on your investment gains until you withdraw the funds in retirement.

Roth IRA

A Roth IRA, on the other hand, is funded with after-tax dollars. There is no tax deduction for contributions made to a Roth IRA, but the money can be withdrawn tax-free in retirement. The investment gains in a Roth IRA are also tax-free as long as certain qualifications are met.

Differences

The primary differences between the two accounts come down to when you’ll pay taxes and how much control you’ll have over the account. With a traditional IRA, you’ll pay taxes on your contributions and investment gains when you withdraw the funds in retirement. With a Roth IRA, you’ll pay taxes upfront on your contributions, but you won’t pay taxes on withdrawals in retirement.

Another significant difference between the two accounts is that traditional IRAs require you to start taking required minimum distributions (RMDs) when you reach age 72. Roth IRAs, on the other hand, don’t have a required minimum distribution age threshold. This means you can keep your money in the account for as long as you’d like, providing you with more flexibility in retirement.

Finally, the contribution limits for traditional and Roth IRAs are the same. In 2021, you can contribute up to $6,000 to either account. Those who are 50 or over can contribute an additional catch-up amount of $1,000.

Which one is right for you?

Deciding between a Roth IRA and a traditional IRA can be challenging, but there are a few rules of thumb that can help you choose. If you expect to be in a higher tax bracket when you retire than you are now, a Roth IRA may be a better option for you. If you expect to have a lower tax bracket in retirement, however, a traditional IRA may be a good choice.

It’s also worth considering where you are in your career. If you’re early in your career and expect your income to increase over time, a Roth IRA may be a good choice. Alternatively, if you’re later in your career and expect your income to decrease as you approach retirement, a traditional IRA may be a better option.

Ultimately, the decision to choose a Roth IRA or a traditional IRA depends on your individual circumstances. Consulting a financial planner or advisor can help you make an informed decision that aligns with your retirement goals.