Traditional IRA vs Roth IRA

Which is better?

An IRA, both traditional and Roth, is an excellent tool to help you save for your retirement. But the question is always asked: which is better?

Since both types of IRA have advantages, the answer varies per person. To help us better understand the situation, let’s take a look at both types of IRA.

Traditional IRA

Contributions are made with pre-tax money
At age 59.5 you can start withdrawing
Money is taxed as earnings when withdrawn
subject to a 10% penalty if withdrawn before age 59.5
No income restrictions

Roth IRA

Contributions are made with after-tax money
earnings are tax free
No strict regulations on dustributionl
Only available to single-filers who earn less than $95,000 and married couples earning less than $150,000 yearly

Taxes

The main thing to take into consideration is the way that you are taxed by the government. With a traditional IRA your contributions are tax deductable, but you are taxed on the back end, or when you withdraw your money. Whereas with a Roth IRA you are taxed on the front end, or before you contribute money. However, when you reach retirement age your earnings are 100% tax free. Essentially, it’s a choice of whether you want to pay taxes now, or later…

How much can I contribute to my IRA?

The Federal government limits the amount of money that you can contribute to your IRA in any given fiscal year. These restrictions apply to both types of IRA’s and vary with age and the given year.

Age 49 and below: