When it comes to self-directed IRA's and retirement, how do Roth and Traditional IRA's compare as Retirement Solutions? Here owner of IRA Advantage, David Moore address that and more! WEBSITE ----------- SOCIAL MEDIA ----------------- Linkedin: Google+: Facebook: Twitter: Instagram: Youtube: LATEST NEWS FROM IRA ADVANTAGE ---------------------- Disclaimer: All my opinions are my own. These statements are not meant to be taken as investment advice....(read more)
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In Part 1 of this series, we looked at the differences between Roth and Traditional IRAs, focusing on their tax implications. In this second part, we'll dive deeper into how they compare as retirement solutions. First, let's briefly recap the main tax-related differences between the two. With a Traditional IRA, you contribute pre-tax dollars, which means you lower your taxable income in the year you make the contribution. The money grows tax-deferred, meaning you don't owe any taxes on the earnings until you withdraw the money in retirement. At that point, you'll pay ordinary income taxes on the amount you withdraw. With a Roth IRA, you contribute post-tax dollars, so you don't get an immediate tax break. However, the money you contribute grows tax-free, and you won't owe any taxes on qualified withdrawals in retirement. Now let's look at the pros and cons of each type of IRA. Traditional IRA Pros: - Tax savings now: If you're in a high tax bracket now but expect to be in a lower tax bracket in retirement, a Traditional IRA can reduce your current tax burden. - Lower income thresholds: There are no income limits for contributing to a Traditional IRA (although there are limits on the tax-deductibility of contributions for high earners). - Required Minimum Distributions (RMDs): Once you turn 72, you'll be required to start taking annual withdrawals from your Traditional IRA. While this may seem like a disadvantage, it can actually be a good thing - the RMDs can force you to take money out of your account and enjoy it during retirement, rather than hoarding it or leaving it to your heirs. Traditional IRA Cons: - Tax burden in retirement: When you withdraw money from a Traditional IRA in retirement, you'll owe ordinary income taxes on the amount you withdraw. This could be a big tax hit if you have a large Traditional IRA balance. - No flexibility: With a Traditional IRA, you can't withdraw money before age 59 1/2 without paying a penalty (with a few limited exceptions). This can make it harder to access your retirement savings if you need them before that age. Roth IRA Pros: - Tax-free withdrawals in retirement: If you anticipate your tax rate being higher in retirement than it is now (perhaps you expect to have a lot of income from other sources), a Roth IRA can be a great way to avoid a big tax bill down the road. - No Required Minimum Distributions: With a Roth IRA, you're not required to take withdrawals at any age. This means you can leave your money in the account to grow tax-free for as long as you want. - Flexibility: Since you contribute post-tax dollars to a Roth IRA, you can withdraw your contributions at any time without penalty. Plus, you can withdraw earnings tax-free and penalty-free if you're over 59 1/2 and the account has been open for at least 5 years. Roth IRA Cons: - No immediate tax break: Since you don't get a deduction for Roth IRA contributions, you'll be paying more in taxes now than you would with a Traditional IRA. - Income limits: If you earn too much money, you may not be eligible to contribute to a Roth IRA. (However, there are backdoor Roth IRA strategies that allow high earners to get around this.) So which type of IRA is best for you? Like many financial decisions, the answer depends on your personal situation. If you're young and expect to be in a higher tax bracket in retirement than you are now, a Roth IRA may be a good choice. Conversely, if you're approaching retirement and your income is likely to decrease significantly, a Traditional IRA might make more sense. Ultimately, the most important thing is to start saving for retirement as early as possible - whether that means opening a Roth or Traditional IRA, contributing to your employer's 401(k), or a combination of all of the above. Retirement may seem far off, but the sooner you start saving, the better off you'll be in the long run. https://inflationprotection.org/roth-vs-traditional-iras-part-2-how-they-compare-as-ira-retirement-solutions/?feed_id=79598&_unique_id=641755a78e724 #Inflation #Retirement #GoldIRA #Wealth #Investing #taxation #401kPlan #ira #realestate #TraditionalIRA #taxation #401kPlan #ira #realestate
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