Traditional IRAs vs. Roth IRAs

An IRA, or individual retirement account, is essential for anyone planning for retirement. The two main types of IRAs are Traditional and Roth. Both of these options offer their own distinct advantages, and the one you choose can significantly impact your long-term savings.

In this article, the retirement professionals at American Investment Planners, LLC will highlight the similarities and differences between the two types of IRAs, so you can decide which one is best for you.

What’s the Same?

Traditional IRAs and Roth IRAs have a lot in common. At a foundational level, they are both designed to help individuals save for retirement. Both accounts have a maximum contribution of $5,500 per year, or $6,500 if you are 50 years or older. Both types of accounts also offer tax advantages, which brings us to our next point...

What’s Different?

The single biggest difference between Traditional and Roth IRAs is when you can take advantage of these tax advantages. Traditional IRAs offer tax-deductible contributions, while withdrawals are taxed at ordinary income rates. Roth IRAs, on the other hand, provide no tax advantages on contributions, but withdrawals are tax-free (as long as you avoid early withdrawal penalties). To simplify this, Traditional IRAs offer tax advantages now, while Roth IRAs offer them during your retirement.

For this reason, Roth IRAs are generally suggested for younger people, or those who have just made a career change, since they will likely be in a higher tax bracket in the later stages of life.

Other key differences include income limits, contribution age, and minimum required distributions. Your income level does not affect how much you can contribute to a Traditional IRA, however Roth accounts are subject to income limits. You can contribute to a Roth IRA at any age, however Traditional IRA contributions must stop when you reach age 70½. Lastly, Traditional IRAs require minimum distributions each year after you turn 70½; Roth IRAs do not.

Still unsure which type of IRA best meets your individual needs? The financial consultants at American Investment Planners, LLC are available to answer all of your questions.

To schedule an appointment with one of our advisors, please call (516) 932-5130 or email info@americaninvestmentplanners.com.