ROTH IRA vs TRADITIONAL IRA(Which Is Better?) What is an IRA? What EXACTLY are the real differences between a Roth IRA and a Traditional IRA? In this video I explain, in detail, which is better, and let you decide which option is best for you. A Roth IRA vs. Traditional IRA.
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**Timestamps**
00:00 Intro
00:20 What is an IRA
00:45 Traditional IRA
01:15 Roth IRA
02:23 Who can open and contribute
02:52 Contribution limits
03:23 What investments you can make
03:45 Where to open an IRA
04:20 Penalties
05:27 More on Traditional IRA’s
07:37 More on Roth IRA’s
10:17 What is the 5 year rule
12:05 What are RMD’s
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This information is only provided as an informational resource and should not be viewed as investment advice or recommendations. You should always get professional financial advice from a financial advisor near you.
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Is a Roth IRA Better Than a Traditional IRA?
When it comes to planning for retirement, one of the best ways to ensure financial security is by contributing to an individual retirement account (IRA). However, choosing between a Roth IRA and a traditional IRA can be a difficult decision. Both options have their advantages and disadvantages, but understanding their differences can help you determine which one is better suited for your needs.
First, let’s discuss the main distinction between these two types of IRAs: their tax advantages. With a traditional IRA, contributions are typically tax-deductible, meaning that you can reduce your taxable income by the amount you contribute. However, when you withdraw money from this account during retirement, you’ll have to pay taxes on the distributions as ordinary income.
On the other hand, a Roth IRA offers tax-free withdrawals in retirement. While contributions to a Roth IRA are not tax-deductible, the earnings generated within the account and qualified withdrawals are completely tax-free. This makes a Roth IRA particularly advantageous for individuals who expect their tax rate to be higher in retirement than it is currently.
Another key difference is the age restrictions for contributions and withdrawals. With a traditional IRA, individuals can contribute until they reach the age of 70 ½, and withdrawals must begin by age 72. In contrast, a Roth IRA doesn’t have any age-based contribution or distribution requirements, allowing you to contribute as long as you have earned income.
Additionally, a Roth IRA provides more flexibility when it comes to withdrawals before retirement age. While a traditional IRA imposes a 10% early withdrawal penalty (with certain exceptions), a Roth IRA allows you to withdraw your contributions penalty-free at any time. An added benefit is that you can also withdraw your earnings tax and penalty-free if you meet certain conditions, such as being at least 59 ½ years old and having the account open for five years or more.
The amount you can contribute to an IRA is another aspect to consider. For the tax year 2021, the maximum contribution limit for both Roth and traditional IRAs is $6,000, or $7,000 for individuals aged 50 and older. However, it’s important to note that contribution limits can change, so staying informed about these changes is essential.
Ultimately, whether a Roth IRA or a traditional IRA is better for you depends on your unique circumstances. If you anticipate having a higher tax rate in the future or value tax-free withdrawals in retirement, a Roth IRA may be the ideal choice. However, if you prefer upfront tax deductions and have a lower expected future tax rate, a traditional IRA might be more advantageous.
It’s wise to consult with a financial advisor to fully comprehend the benefits and limitations of each type of IRA, as well as how they align with your retirement goals. By carefully considering your current and future financial situation, you can make an informed decision and establish a retirement plan that provides you with the desired level of security and financial peace of mind.
Good morning Sir, I have a question/concern. I have a traditional 401k with my employer, but they do not match. I was not aware of this until last week. I do not wish to continue contributing into a company who does not match my contribution. Will it be best to switch to a roth IRA instead? I am with Merrill lynch. I have no ideas as to how all this works, but I'm trying. May you have a blessed day sir.
Thanks for this explanation. When you have contributed the max to your 401k, can you contribute catch up funds to a roth? If you are at the right age.
Thanks for lining this out. Shared with my kids, all in their young 20s late teens
Interesting information for me I have both
Damn the tax deduction thing is what I wanted when I opened my IRA but chose a Roth , realized that I messed up after lol
Both are great. Which is best for you will depend on your circumstances.
Me, i have a Roth IRA and a 401k. It works for me. But in my opinion either is good. Especially when the average American has less than 400 dollars in savings for emergencies. Saving money is always for the best. have a good one everyone.
So basically I can take out my earnings from my Roth IRA after 5 years without penalty?
it is always good to have a financial plan. I work with a professional planner and fixed-income strategist in NY. the fixed income portion of your portfolio won't simply serve as a buffer to the volatility of the equity portion of your portfolio, but will provide legitimate income.
Traditional nearly always, with the most notable exception being when you have a low income (like as a student).
The reason is that your traditional contributions avoid taxes at your marginal rate, not your effective rate (which is what your withdrawals will be taxed at). The best explanation of this that I've seen is the Roth Sucks blog post by Go Curry Cracker.
Roth is very overrated for most people. There's a reason the IRS doesn't allow high income people to deduct traditional contributions; it's too good for dodging income taxes!
I do both and a 401k. I make $60k/ year…. 20% 401k. I rolled over $200k in to an IRA. 15% of company stocks at a discounted price and max my ROTH IRA every year… my checks are small!!!lol $530/ week. Then I take 1 check a month and that's where my ROTH comes from…. its called a sugar mama!!! I highly recommend them!!!LOL
I just opened a Roth IRA, I already have a 6% matching traditional IRA. I plan to retire early in my late 50s, in my 30s now.
What kind of investment (regular investing into VOO s&p 500, an IRA or a Roth IRA) do you recommend for a veteran receiving tax free disability money $400 per month?
Thanks for updating regular content.
I’ve thought about a ROTH-IRA and I just haven’t done it. Right now I just have most of money in a Acorns account and a minimal amount of stock elsewhere. I know if there’s gains I need to pay capital gains tax. I don’t know what to do at this point.
I am 53 years old. I spent 16 years in the Philippines as government employee. I contributed to the Government Social Security System (GSIS). Based on the GSIS law, I am eligible to receive a pension by the age of 60. Now I migrated to Canada in 2021, I am now a Permanent Resident of Canada. But I still don't have a job here.
Sir,
Could you please do a video on the TSP?
Thank you.
You can also open a self-directed IRA and a self-directed ROTH IRA. I have both of these and I invest in real estate with both of my self-directed accounts.
Well you really have no choice but to put money in traditional 401K if you make over $160K single, right?
Excellent video Brother, keep teaching.
I prefer Roth, especially for a young person. There can be incredible growth if time is on your side, and with a Roth you never pay taxes on that growth. I’d rather pay 22% taxes on $100,000 than pay 12% taxes on a couple million.
Is it true that Bitcoin is the greatest asset ever?
Thanks for the content.