Choosing Between an IRA and a Roth IRA


There are several major differences between a traditional IRA fund and a Roth IRA. By choosing a Roth IRA, one advantage is that you will be able to withdraw funds that are non-taxable. Most professional financial advisors state that those who are beginners in the world of investment options should open a Roth IRA account because they give beneficial tax breaks in the future and are simple to understand. They recommend doing this even before opening an employer based retirement savings plan unless they provide matching funds for your deposits. Most advisors also recommend switching or converting to a no fee IRA as soon as possible if you currently have the traditional type.

Why Should I convert to a Roth IRA?

If you currently have a traditional IRA and would like to change to a Roth, you may have to pay taxes on the full balance of the traditional IRA, but this could be looked upon as beneficial in the long run. For instance, if you are fairly sure that your income tax is going to become higher, it may be a good idea to switch to a Roth IRA now, although converting a traditional IRA to a Roth means that you will pay taxes at the time of the conversion.

Some Basic Rules for a Roth IRA:

Contributions to the fund are limited, as are spousal contributions. As long as one spouse has compensation income, the other can also contribute to the Roth account, as long as the couple files a joint status on their tax refund. There are also no age limits as long as the individual has income from a job that can be verified. Being involved with or having a 401k program does not affect the amount or the eligibility of those wishing to also have a Roth IRA account. If you decide to convert your traditional IRA to a Roth account, you may still make contributions during the year of the conversion.

Roth IRA Perks:

One of the big perks of having a Roth IRA account is that you can make contributions to it until the age of 70, and you are allowed to leave the money in the account as long as you wish. As long as you are within the guidelines and you meet the requirements, your qualified distributions will remain tax free. To receive the fullest benefits, the account has to be designated as a Roth when it is set up.

Most Common Uses for a Roth:

IRA accounts of both types are mainly used as a retirement savings account. The consumer is allowed to make up to a certain number of contributions through the year. When you are over the age of fifty nine and have the account at least five years, you will be able to make withdrawals that are tax free. Roth IRA’s are a well known and effective way of being able to have savings when you retire.

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