Roth IRAs vs. Traditional IRAs – Which is Right for You?

Financial Planning Company, Investment Management FirmSaving for retirement is something we all know we should be doing, but getting started can be intimidating. With so many different investment strategies and packages out there, it’s not uncommon to become overwhelmed at the very thought of retirement savings. Like anything complicated, fully understanding retirement investing strategies begins with learning the basics.

Two of the most popular retirement investment options are traditional IRAs and Roth IRAs. Despite their similar names, traditional IRAs and Roth IRAs appeal to different people for different reasons. Below are some fast facts that highlight the key differences between these two individual retirement accounts:

 

Traditional IRAs

  • Taxes are paid on your savings when you withdraw the money in retirement
  • Money in a traditional IRA grows tax free while it is in the account
  • You must start withdrawing money by the time you reach age 70 ½
  • Nearly anyone with an earned income can contribute to a traditional IRA

 

Roth IRAs

  • Taxes are paid while you invest money into the account, but not when money is withdrawn
  • Money in a Roth IRA grows tax free while it is in the account
  • Roth IRAs allow you to withdraw money whenever you like however there are penalties for withdrawing too much. To avoid penalties, it’s best to consult an asset manager whenever considering withdrawing money from a Roth IRA.
  • There are no mandatory withdrawal requirements for a Roth IRA

 

Both traditional and Roth IRAs have annual caps on the amount one can invest. Those under the age of 50 are limited to contributing $5,500 or the total of your taxable compensation, whichever is smaller. Those 50 and over are allowed to contribute $6,500 annually. The amount you can invest into a Roth IRA also depends on your income. An investment advisor will be able to inform you of your specific IRA investment limits.

Here at Focus Financial, we’re committed to helping our clients make the best financial decisions for the current situation as well as their future goals. Speaking with a financial planning advisor is the best way to understand which saving options will set you on a path to achieving your retirement goals.

 

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