There’s Still Time to Open an IRA – But Which Type is Right for You?

Published on October 15, 2013

Roth IRA vs Traditional IRA

Uh oh – we’re in the fourth quarter of the calendar year, it will soon be time to send your tax documents to your accountant . . .  and you didn’t set up an IRA yet to start saving for retirement?

No worries – you have until April 15, 2014 to make a contribution that will apply to the 2013 tax year. But now—well, any time—is ripe for opening up an IRA.

Whether or not to select a Traditional or Roth IRA is a choice to make when opening a retirement account. There are benefits to each type of plan depending on the investor’s goals and situation. There are also certain restrictions around income, age, and other factors. Either one of these may be self-directed.

We always recommend that our clients consult their financial planner or tax professional about which type of retirement plan is best for their unique situation. You can also read about these plans at http://www.irs.gov/.

Here are some comparisons between Traditional and Roth IRAs for you to consider.

Traditional IRA 101

The Traditional IRA (individual retirement account) was created in 1975 by the federal government for those Americans who did not have pension plans through their employers, and because (even back then), Social Security was not providing enough income during retirement. Sound familiar?

The IRA education page of our website that explains “What is  traditional IRA” lays out the basics about traditional IRAs; for example:

Roth IRA 101

The Roth IRA was created in 1997 as part of the Taxpayer Relief Act; it was intended for the middle class to help save for retirement. Therefore, there are income criteria associated with who may open and contribute to a Roth IRA.

A big difference (there are a few) is that the money is taxed going into the account; the money generated by the investments in a Roth IRA is withdrawn tax-free. Another difference is that with a Roth IRA you are not required to ever withdraw the funds.

Here are some Roth IRA tips which we covered in a previous blog post:

rothvstrad-iraWith a self-directed IRA, whether traditional or Roth, SEP or SIMPLE (for employers and the self-employed) individuals may invest in a broad range of assets, not only stocks, bonds and mutual funds but the many alternative investments allowed within a self-directed retirement plan. If you have any questions about these nontraditional assets, the types of retirement plans that are available, or wish to open a self-directed IRA, please contact us at (888) 857-8058 or Info@NextGenerationTrust.com; one of our helpful professionals will get you the answers right away.

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