Roth IRA or Traditional IRA, Which one is better?

August 18th, 2009 by David Leave a reply »

Choosing the right type of IRA account may be a daunting task, so if you are wondering what type of IRA is better for you (Roth or Traditional) you may want to consider the following factors:

Tax benefits

Without any doubts, one of the most important factors when deciding between a Roth IRA and Traditional IRA is that you can deduct your Traditional IRA contributions as a tax break for the current year of your contribution. Tax deductible contributions may not apply to you if you participate in a retirement plan at work.

Roth IRA contributions may be deducted tax free at any time, since they have already been taxed.

Limits

Contribution limits are the same for both a Roth IRA and a Traditional IRA. For the tax year 2009, you could contribute up to $5,000 to your IRA (either type) or up to $6,000 for those 50 years old and over.

Age Limitations

Traditional IRAs have age limitations, for instance, with a Traditional IRA you have to stop contributing the year you reach 70 ½. You also have to start taking withdrawals that same year.

In the contrary, with a Roth IRA account there are no age restrictions; you don’t have to stop contributing or start taking withdrawals at any specific time.

Limitations based on income


Your income may limit your ability to contribute to a Roth IRA at all. In order to be eligible for Roth IRA contributions, your income must be:

  • Up to $176,000 if you are married and file taxes together.
  • Less than $10,000 if you are married and live together but file separately.
  • Less than $120,000 if you are single.

You cannot contribute to a Roth IRA if your income exceeds the figures above. If your income falls within certain ranges your contributions limits will be lowered.

Traditional IRAs don’t have income limitations.

Required Minimum Distributions
With a traditional IRA you are obligated to take required minimum distributions (RMD) on April 1st of the year you reach age 70 1/2 (you must also stop contributing at this time too). Roth IRAs don’t have such rules.

Before deciding for a Roth IRA or a Traditional IRA, be sure to consult with your tax consultant, as there may be other factors that could affect which option works best for your specific needs.

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2 comments

  1. Gary Austin says:

    Suggested sentence corrections in caps:

    In the contrary, with a Roth IRA account there are no age restrictions; you don’t have to stop contributing or START taking withdrawals at any specific time.

    You cannot contribute to a Roth IRA if youR income exceeds the figures above. If youR income falls within certain ranges your contributions limits will be lowered.

  2. admin says:

    Corrections accepted! Thanks.

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