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October 6, 2016
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October 6, 2016
What is the difference?
First of all, what is the difference between the two different retirement plans? The most important difference is when the taxes are paid on the money put into the fund. While you will pay the taxes on the back end with a traditional IRA, with the Roth IRA the taxes are paid on the front end. Which means with a traditional IRA, you will be paying taxes when you withdraw the money in retirement. However, there are instances with a traditional IRA where you may escape taxes on the front end upon putting money into the account. On the other hand, with a Roth IRA, you will pay the taxes on the front end, with no taxes on the back end.
It is important to keep in mind, in both traditional and Roth IRAs, your money grows tax free while it’s in the account.
Another important difference to consider is that there are limits on who can contribute to a Roth IRA, while anyone can contribute to a traditional IRA.
If you need to withdraw money earlier, the Roth IRA is much more forgiving than a traditional IRA.
With a traditional IRA you must start withdrawing the money by the time you reach age 70½. You have the option to at any age as long as your modified adjusted gross income is below certain amounts with a Roth IRA.
Are my contributions deductible?
With a traditional IRA they are deductible if you qualify. Your contributions are not deductible with a Roth IRA.
How much can I contribute?
The most you can contribute to all of your traditional and Roth IRAs is whichever of the following is smaller:
1) $5,500 (for 2015 and 2016), or $6,500 if you’re age 50 or older by the end of the year
2) or your taxable compensation for the year
When can I withdraw money?
Any time.
What is the deadline?
Your tax return filing deadline (not including extensions).
Additional Resources:
https://www.irs.gov/retirement-plans/traditional-and-roth-iras
http://money.cnn.com/retirement/guide/IRA_Basics.moneymag/index2.htm
