What Type of IRA Savings Account Is Right for Me?
There are two main types of IRA Savings accounts to choose from: Roth and Traditional. If you’re not sure which one is right for your retirement savings strategy, this post is for you.
The main difference between Roth and Traditional IRA Savings accounts is the different type of tax benefit each offers. Before we break down the differences, here’s what’s the same for both:
* Consult your tax advisor
The main difference between Roth and Traditional IRA Savings accounts is the different type of tax benefit each offers. Before we break down the differences, here’s what’s the same for both:
- Contribution limit for 2019: $6,000.
- Contribution deadline: Wednesday, April 15, 2020 (for the 2019 tax year).
- No minimum to open.
Roth IRA
If your tax rate will be higher in retirement, a Roth IRA is a good pick. Here are its main takeaways:- No age restrictions; you can contribute any earned income at any time as long as your single income is less than $122,000 in 2019 ($193,000 if married filing jointly).
- Contributions are not tax deductible.
- Earnings grow in your account tax-free.
- You can withdraw your contributions at any time without owing taxes or incurring penalties.
- No distribution requirements; you can keep money in your Roth IRA for as long as you’d like.
Traditional IRA
If your tax rate will be lower in retirement, a Traditional IRA and its upfront tax advantages are a good pick.- Anyone up to age 70 ½ with earned income may contribute.
- Contributions are tax-deductible.
- Earnings are tax-deferred until you withdraw.
- You’ll pay taxes on your withdrawals in retirement. If you make withdrawals before you’re 59 ½, you might incur a tax penalty.
- There is a required minimum distribution starting the year you turn 70 ½.
* Consult your tax advisor