Traditional IRA or Roth IRA? IRA’s have a place in your portfolio, but which one is the right one for you. Let’s take a look at how they compare and see if one emerges as better for your situation.
Highlights of a Traditional IRA
• Tax deferred until you withdraw the funds.
• Accessible without penalty after 59-1/2.
• Monies withdrawn before 59-1/2 are subject to a 10% IRS penalty.
• Must withdraw by 70-1/2 or the IRS will penalize you 50% of what you were supposed to have taken.
• Must have earned income in order to contribute.
• Even those who participate in an employer sponsored qualified retirement plan may make full tax deductible IRA contributions as long as income is $50,000 or less for a single filer and $70,000 or less for joint filers.
• For 2011 the contribution amount cannot be more than $5,000 for those under age 50 – 50 years old and up to 70-1/2 can contribute $6,000.
• Only one spouse needs to be working… example… husband is working, wife stays home both are in their 40’s… $5,000 could be put in for both the husband and wife and $10,000 could be written off their taxable income for that year.
• You may contribute up until Tax Day.
• You may contribute for each year starting January 1… you don’t need to wait to get your contribution in your account making money for you.
Highlights of a Roth IRA
• Tax free when you withdraw the money after 59-1/2.
• Must also be in the ROTH for 5 years for interest to be tax-free.
• Subject to 10% IRS penalty for early withdrawal.
• Must be in the ROTH for 5 years for the interest to be tax-free.
• Funded with after tax dollars so you CANNOT write it off. You still need earned income, not pension, dividend or interest income, but actual money you earned for a service provided.
• As long as it has been in the account for 5 years, principle funds up to $10,000 can be used without penalty for a first time home purchase, or in the case of disability.
• A single person can have an adjusted gross income of less than $95,000 to contribute.
• Married filing jointly can make up to $150,000 and still make a contribution.
• $5,000 for those under age 50, and $6,000 for age 50 and up. For both spouses.
• Unlike a Traditional IRA, one can be working past 70-1/2 and still contribute to a ROTH.
• Also, a Roth differs from a Traditional IRA in that you do not have to start taking distributions at 70-1/2. However, at the death of the IRA owner, the beneficiary must start taking distributions and it must be made by December 31 of each year.
• Again, one may contribute for tax year up until Tax Day or you may start contributing for the year on January 1.
• In 2011 both Roth and Traditional IRA contribution amounts will be raised to $6,000 for those of us over age 50. Under age 50 contributions will be $5,000.
As you can see, there are similarities and differences between the Traditional and Roth IRA’s. If you would like to find out more or figure out which one is right for your situation, please contact SK Financial Group and we will be glad to answer any questions you may have.
At SK Financial Group, we pride ourselves on helping our clients make the decisions that are right for them. When you are ready to get your financial plan set up, please do not hesitate to Contact Us. Our experience, expertise and dedication will be another asset in your portfolio. We are based in Sewickley, PA and proudly serve the Pittsburgh area and beyond.