IRAs: Traditional Vs. Roth
Traditional IRA vs. Roth IRA Planning for retirement is a must do for people regardless of your age. The sooner you start, the better. With the power of compounding interest, your retirement account will grow exponentially. Now while many people have access to an employer sponsored plan; in most cases a 401(k), an Individual Retirement Account (IRA) allows you to save money for retirement without an employer. There are several types of IRAs but the two most popular plans are Traditional IRAs and the Roth IRA. Both have their own tax benefits. Let's start by going over the specific differences of each one: TRADITIONAL IRA: Started in 1974 Tax caveat: The annual contributions are deductible (with some limitations) - whilst the distributions at retirement are subject to ordinary income tax. Early withdrawals (before age 59.5): Taxed as ordinary income and may be subject to a 10% penalty with certain exceptions. Income Limit: If you or your spouse participate in a comp...