Roth vs. Traditional IRA – Which Retirement Plan is Best for You?
Posted on January 3, 2023 by Oozle Media
Contributing to an Individual Retirement Account (IRA) can be a big part of your retirement strategy. An IRA can help you to save for retirement and taxes. For those who are self-employed and don’t have a company retirement plan, this is a great option to consider for your future. It is important to know the differences between a Roth IRA and a traditional IRA so you can decide on the best plan for you. Read more to learn what you can do now to prepare for your retirement and how the professionals at Lightheart, Sanders, and Associates can help.
What Is a Roth IRA?
A Roth IRA is used to contribute after-tax dollars. The benefit of a Roth account is that your savings become tax-free. The income that you contribute to a Roth IRA account is taxed upfront, so there is no reduction in your taxes.
What is a Traditional IRA?
Traditional IRAs are used by those who want to contribute pre-tax or after-tax dollars. This type of account offers instant tax benefits. Depending on your financial situation, contributions can become tax deductible. Unlike a Roth IRA, you are expected to pay income tax on your withdrawals.
The Difference Between Roth vs. Traditional IRA
The main difference between Roth IRA and traditional IRA is how they deal with taxes. With a Roth IRA, you contribute money that you’ve already paid taxes on, normally called post-tax income. However when you withdraw the money, you can take it out tax-free and penalty free at any time. You will only pay tax on the interest that you gained.
With a traditional IRA, you contribute money that has not been taxed, called pre-tax income. A traditional IRA allows you to lower your income level, which allows you to pay lower taxes. However, the money will be taxed when it is withdrawn. If you withdraw the money before you turn 59 ½ and don’t qualify for a short list of IRS-approved purposes, then you will be penalized an extra 10% on the amount that is withdrawn.
There are income limits, which change year to year, that may not allow you to contribute to either IRA Plans. Please consult with your financial advisor or CPA to determine if you would qualify.
Contact Your Local Financial Advisor or CPA
Setting up a retirement account can be daunting, when you are not sure how to start. Your local financial advisor or CPA can help you to determine the best plan for you and your future.
If you are currently looking for a professional in Madison, Mississippi or Moncks Corner, South Carolina, Lightheart, Sanders and Associates can guide you through the IRA process. Our team has the experience and skills to help and answer any questions you have. Get started on your retirement strategy by contacting us today.
Categories: Investment Strategy
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