You realize the important role an IRA can play in your retirement, so which type of IRA should you use – Traditional or Roth? And what’s the difference?
There are two primary differences in a Traditional and Roth IRA – tax incentives and withdrawal rules.
This means that if you believe you’re in a lower tax bracket now than you will be in when you retire, you should consider a Roth IRA, which lets you settle your tax bill now. If you expect to be in a lower tax bracket with you retire, a Traditional IRA allows you to lower your current tax bill.
For 2018 the maximum contribution to all IRA’s is the smaller of: $5,500 ($6,500 If 50 or older). Taxable Compensation for the year is determined by Modified Adjusted Gross Income (MAGI).
If you’ve got a long way to go before retirement, and you’re concerned about losing access to your money without a penalty, a Roth may be the way to go as it offers more flexibility. If you’re saving to buy your first home in five or more years, you should consider a Roth.
Bottom line – The differences in these accounts aren’t nearly as confusing as they first appear. Before you open an IRA, have an idea of the type you’d like to open, and confirm with your Personal Banker or Investment Advisor that your choice is best for you.
The views, information, or opinions expressed in this article are solely those of the author and do not necessarily represent the views of Citizens State Bank and its affiliates, and Citizens State Bank is not responsible for and does not verify the accuracy of any information contained in this article or items hyperlinked within. This is for informational purposes and is no way intended to provide legal advice.