Individual retirement accounts, better known as IRAs, allow your money to grow tax-free and can be a huge benefit to your retirement assets. If you haven’t yet established an IRA for yourself, contact a financial advisor immediately to learn how to get started. retirement planning advisor Rob De Lessio of Strategic Wealth Designers discussed the difference between a Roth IRA and a traditional IRA. See more financial news at
“Of course having an IRA is a smart investment for your retirement,” says De Lessio. “But people need to be careful with making the following mistakes. One, don’t put all your funds into just an IRA or just a Roth IRA, especially if you don’t know what your tax bracket will be in retirement. Split the difference. Two, don’t withhold contributions because you think you’ll have no access to that money now. Roth IRA contributions are liquid and can be withdrawn at any time without taxes or penalties. And third, don’t look at your IRA as mad money. It’s not only suitable for niche investments like a lot of people think. Core investment assets, such as diversified stock, bond, and balanced funds, make the most sense.”
With a Roth IRA, your money grows tax-free because you contribute after-tax dollars, and you can make tax- and penalty-free withdrawals after the age of 591/2. On the other hand, with a traditional IRA, you contribute either pre- or after-tax dollars, you money grows tax-deferred, and withdrawals are taxed as current income after age 591/2.
“Investors have certainly heard a lot of hype surrounding Roth IRAs tax-free compounding and withdrawals,” says De Lessio. “This can lead investors into thinking that a Roth IRA is always the better option. But that’s not the case. As I’ve stated, the money contributed to a Roth IRA is taxed before you put it in, whereas the money you put into a traditional IRA is taxed after it’s been taken out. The key here is that if you think your income-tax rate in retirement will be lower than it is now, you want a traditional IRA. You only want a Roth IRA if you think your tax rate will be higher in retirement.”
Knowing the difference between a traditional IRA and a Roth IRA can help you decide which one to invest in. To see additional stories surrounding business and economic news for the Cincinnati area, visit and if you have a question for De Lessio send an email to info@swdgroup.com....(read more)
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Roth IRA versus Traditional IRA: Understanding the Key Differences When it comes to saving money for retirement, it is essential to choose the right retirement savings account to meet your needs. Two popular options available in the United States are the Roth IRA and the Traditional IRA. Understanding the differences between these two accounts can help you make an informed decision and develop a retirement strategy that aligns with your financial goals. One of the key distinctions between a Roth IRA and a Traditional IRA lies in the timing of tax payments. A Traditional IRA allows you to contribute pre-tax income, reducing your current taxable income. This means that you do not pay taxes on the money you contribute until you withdraw it during retirement. Conversely, a Roth IRA utilizes after-tax dollars, meaning you pay taxes on the money you contribute upfront. However, when you withdraw funds during retirement, qualified distributions are tax-free. Another significant difference is the eligibility criteria. While anyone with earned income is eligible to contribute to a Traditional IRA, the ability to contribute to a Roth IRA is subject to income limits. In 2021, single filers with modified adjusted gross income (MAGI) below $125,000 and married couples filing jointly with MAGI below $198,000 can contribute the maximum amount to a Roth IRA. Contributions phase out gradually for individuals with higher incomes. The tax treatment of withdrawals is also distinct between these two accounts. With a Traditional IRA, withdrawals during retirement are taxed as ordinary income. This means you will have to pay taxes on the distributions at your current income tax rate. On the other hand, qualified withdrawals from a Roth IRA, which includes both contributions and earnings, are entirely tax-free. This feature can be particularly advantageous for individuals who anticipate being in a higher tax bracket during retirement. Additionally, the age at which you must start taking required minimum distributions (RMDs) is different between the two accounts. With a Traditional IRA, you must begin taking RMDs at age 72 (formerly 70 ½ years old). These RMDs are based on your life expectancy and the balance of the IRA at the end of the previous year. On the contrary, no RMDs are mandatory for Roth IRAs during the lifetime of the original account owner. Instead, you have the flexibility to withdrawal money whenever you desire or leave it untouched to continue growing tax-free. Choosing between a Roth IRA and a Traditional IRA depends on your individual circumstances and retirement goals. If you anticipate being in a higher tax bracket during retirement or prefer tax-free withdrawals, a Roth IRA might be a wise choice. Conversely, if you want to reduce your tax burden in the present and are comfortable paying taxes on your withdrawals during retirement, a Traditional IRA could be a more suitable option. It is important to note that contributions to both Roth and Traditional IRAs have annual limits. In 2021, the maximum contribution is $6,000 for individuals under 50 years old, with an additional $1,000 catch-up contribution for those 50 and older. In conclusion, Roth IRA and Traditional IRA accounts offer distinct advantages and considerations. Understanding the differences in tax treatments, eligibility criteria, withdrawal rules, and contribution limits will help you make an informed decision about the best retirement savings account for your financial situation. It is always beneficial to consult with a financial advisor or tax professional to determine the most suitable option based on your unique circumstances. https://inflationprotection.org/traditional-ira-vs-roth-ira-a-comparison/?feed_id=131181&_unique_id=64ef31222a998 #Inflation #Retirement #GoldIRA #Wealth #Investing #Cincinnati #Ohio #WKRC #WKRCLocal12 #TraditionalIRA #Cincinnati #Ohio #WKRC #WKRCLocal12
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