“IRA, Roth IRA… Explained”

Tiffany Gonzalez CPA is back with another installment of “What is that?!?” Where we define and discuss financial terms you may or may not know and make them easy to understand.

In this episode Tiffany will cover the Traditional IRA and the Roth IRA. Where they came from, meanings, rules and regulations. Most importantly, how they can help you achieve your retirement goals. Live your best life by watching this video and getting your Financial IQ up!

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Disclaimers & Disclosure:

This content is for education and entertainment purposes only. Tiffany Gonzalez CPA and Accounting to Scale are not providing Tax or Investment advice. The information is being presented without consideration of the financial circumstances of the taxpayer/investor, financial objectives or risk tolerance and may not be suitable for all taxpayers/investors. We don’t make any guarantees or promises as to results that may be obtained using our content. All investing involves risk, including risk of losing investment principal….(read more)

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IRA, Roth IRA… Explained.

Individual Retirement Accounts (IRAs) and Roth IRAs are popular retirement savings vehicles that offer tax advantages to individuals. These accounts are designed to help people save for retirement and provide a way to build up a nest egg for their future.

An IRA is a type of retirement account that allows individuals to save for retirement with tax-deferred growth. This means that contributions to the account are made with pre-tax dollars, and the earnings on the investments are tax-deferred until they are withdrawn in retirement. There are different types of IRAs, including traditional IRAs, SEP IRAs, and SIMPLE IRAs, each with their own eligibility requirements and contribution limits.

One of the most significant advantages of an IRA is the ability to deduct contributions from your taxes, which can reduce your taxable income for the year. Additionally, the money in an IRA can grow tax-free, allowing your investments to compound over time and potentially grow significantly.

On the other hand, a Roth IRA is similar to a traditional IRA, but with some key differences. With a Roth IRA, contributions are made with after-tax dollars, meaning that you do not get a tax deduction for your contributions. However, the earnings in a Roth IRA grow tax-free, and qualified withdrawals in retirement are also tax-free. This means that all the money withdrawn from a Roth IRA, including the investment earnings, is tax-free once you reach retirement age.

One of the primary benefits of a Roth IRA is the ability to withdrawal money tax-free in retirement, which can be a significant advantage for individuals in higher tax brackets. Additionally, Roth IRAs do not have required minimum distributions (RMDs) like traditional IRAs, meaning you do not have to take money out of the account at a specific age.

Both IRAs and Roth IRAs have contribution limits, which are set annually by the IRS. For 2022, the annual contribution limit for both traditional and Roth IRAs is $6,000, or $7,000 for individuals over the age of 50. It’s important to note that there are income limits for contributing to a Roth IRA, and individuals with high incomes may not be eligible to contribute to a Roth IRA.

In conclusion, IRAs and Roth IRAs are valuable tools for saving for retirement and can provide significant tax advantages. Whether you choose a traditional IRA or a Roth IRA depends on your individual financial situation and tax considerations. It’s important to consider the long-term impact of these accounts and consult with a financial advisor to determine the best retirement savings strategy for your needs.