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Finding the IRA Type for You: Nine Comparisons to Put You on the Right Path

There are two common types of individual retirement accounts (IRAs), traditional IRAs and Roth IRAs. Many people often look for one of these plans as a retirement fund. They are both designed to help you save money but in entirely different ways. They also have other notable features that make them an excellent choice for certain people. Before you just pick one, it is crucial to know the basics about each one and how they compare and contrast from each other. Here are nine key comparisons between the two types of IRAs to help you determine which one will fit your needs better.

Which IRA is Easier to Set Up?

With a traditional IRA or a 401(k), your business or group can auto-enroll you in the program. You must set up a Roth IRA by yourself, and you will need to keep it funded every year. Traditional IRAs are less of a hassle with fewer hoops to jump through.

Which IRA is More Lenient With Taxes?

Generally, once you reach retirement age, you will not need to pay any taxes on withdrawals with a Roth IRA. If your tax rates are high when you retire, you will likely save a lot of money, particularly when compared with a traditional IRA.

Which is Better for Retirees?

Roth IRAs have fewer restrictions for retirees, and your savings can stay in your account and grow free of any taxes for as long as you are alive. On the other hand, traditional IRAs require you to take required minimum distributions (RMDs) when you turn 70-and-a-half years old. Roth IRAs offer more flexibility for people as they grow older.


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Which is Better Toward the Purchase of a Homeowner’s First Home?

Traditional IRAs allow you to spend up to ten thousand dollars of your saved money toward the purchase of your first home. Although you will have to payany taxes that are owed, you will be able to avoid penalties on taking the money. If you use money in a Roth IRA toward the purchase of your first home, not only will you have to pay taxes on the money, but you will be charged penalties as well, ultimately costing you more money in the end.

Which is Better for Paying College Tuition Costs?

Traditional IRA money can be used to pay college or university tuition costs without being docked an early distribution penalty, although you will have to pay taxes on the money you use. Money from a Roth IRA account that is used for higher education tuition is subject to penalties and will be taxed as well.

Which can Protect Your Contributions From Bankruptcy?

If you file for bankruptcy, you are allowed to keep the assets you have in a traditional IRA. However, any assets you have in a Roth IRA do not have the same protection. Traditional IRAs are great for business owners for whom bankruptcy is a possibility, as it saves them from losing
all of their money.

Which is Compatible With Other Retirement Accounts?

Traditional IRA accounts allow you to have other types of retirement plans in effect at the same time. If you already have a retirement plan but are considering a Roth IRA, you might not be allowed to open it per the terms of that IRA.

Which is Better for Growth in Savings?

A Roth IRA allows you to accrue more money in a given period. For instance, a person who saves six thousand dollars for 20 years in a Roth IRA will get significantly more money over time compared to the same amount of money going into a traditional IRA.

Which is Better for Giving Money to Heirs?

Roth IRAs allow you to contribute to the account regardless of your age, which is ideal if you want an easy way to give money to your beneficiaries. On the other hand, you cannot make extra contributions to a traditional IRA account after you turn 70-and-a-half years old. So, passing this money down to your heirs would be more difficult.

Choosing the right IRA for you and your family is an important decision that should only be made once you are armed with all the facts. If you need help choosing the best retirement plan that will give you the best return in the long run while not hurting you upfront, we can help you. Contact us today to set up a consultation.

Any opinions are those of the author and not necessarily those of RJFS or Raymond James. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. 

Please note, changes in tax laws may occur at any time and could have a substantial impact upon each person’s situation. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional.


About Signature Wealth

Signature Wealth Strategies is a wealth management practice serving families like yours with a hands-on, concierge level service. Our advisors help you confidently plan your financial future through comprehensive strategies and custom solutions. We believe that each client’s story is as unique as his or her signature, and their financial strategy should be too.