How to Choose the Right IRA for You

If you are looking into retirement planning, you might have come across Roth IRAs and Traditional IRAs. Here are a few tidbits of information on both and how to choose which one is best suited for you!

Difficulty: Moderately Challenging

Instructions

1. One of the main differences between the 2 types of IRAs is the way they are taxed. Traditional IRAs are tax-deferred, while Roth IRAs are tax-sheltered; Meaning you pay no tax upon withdrawing at retirement age with a Roth and tax is deferred until withdrawing with a Traditional.

2. There are some income requirements for a Roth IRA. A single tax-filer can't make any more than $95,000 a year, and no more than $150,000 a year for married couples. However, there are no income requirements for a Traditional IRA.

3. When using a Traditional IRA, withdrawals begin at 59 1/2 and become mandatory by age 70 1/2. There is no mandatory distribution age with a Roth IRA. If you withdraw your funds from a Roth IRA early, there will be no tax on the principal contributions. Pulling out money early from a Traditional IRA means a 10% penalty on your total.

[candylady]

on 10/15/2008 I always wondered what the difference was and now I know.I will look into the roth ira

[duncan411]

on 10/6/2008 I prefer pre-taxed, that way I don't have to worry what taxes will be in the future.