Recs

0

Ask a Fool: Is a Traditional or Roth IRA Better for Me?

Q: I want to start saving for my retirement. Which type of IRA should I choose -- traditional or Roth?

The biggest difference between traditional and Roth IRAs is their tax treatment. The No. 1 choice you have to make is: Do you want your tax break now or later?

With a traditional IRA, your contributions can be tax-deductible right away, depending on your income and if you have another retirement plan at work. If you're in the 25% tax bracket and contribute the $5,500 annual maximum to a traditional IRA, this translates to $1,375 in tax savings that you get to enjoy right away.

On the other hand, contributions to a Roth IRA are not deductible. However, your qualifying withdrawals will be 100% tax-free, no matter how big your account grows. By paying taxes on your Roth contributions now, you can avoid taxes in retirement.

Roth IRAs have a few other benefits as well. Because you've already paid tax on the money you contribute, you're free to withdraw your original contributions (but not your investment gains) at any time, without penalty. This makes a Roth IRA a smart choice for people who don't want their money to be tied up until retirement. Withdrawing from a traditional IRA early generally results in a 10% IRS penalty.

Additionally, Roth IRAs have no minimum distribution requirements and no maximum age limit for contributions, whereas a traditional IRA has both, which kick in at age 70-1/2.

The bottom line is that there is no universally correct answer to the question. In fact, I use a Roth IRA and my wife uses the traditional variety. It depends on which account's features and tax treatment appeal to you the most.

Offer from The Motley Fool: The 10 best stocks to buy now
Motley Fool co-founders Tom and David Gardner have spent more than a decade beating the market. In fact, the newsletter they run, Motley Fool Stock Advisor, has tripled the S&P 500!*

Tom and David just revealed their ten top stock picks for investors to buy right now.

Click here to get access to the full list!

*Stock Advisor returns as of 1/30/2017.

Offer from The Motley Fool: The 10 best stocks to buy now
Motley Fool co-founders Tom and David Gardner have spent more than a decade beating the market. In fact, the newsletter they run, Motley Fool Stock Advisor, has tripled the S&P 500!*

Tom and David just revealed their ten top stock picks for investors to buy right now.

Click here to get access to the full list!

*Stock Advisor returns as of 1/30/2017.


Read/Post Comments (0) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 4008538, ~/Articles/ArticleHandler.aspx, 3/23/2017 12:18:13 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Article registration testing
VISIBLE INTERNALLY ONLY AND ONLY WORKS WITH UNREGISTERED VISITORS

Revisit this page

Clear article's cache and revisit this page

Or, visit the current page, forcing Test ID to article:interrupt:106919 and

Tookie Value = 20644556453000360870002874638863