A: Both types of IRAs provide the potential for tax-beneficial growth that can give your retirement savings an extra boost. The key difference between the two is the way your contributions and withdrawals are taxed.
Because all or a part of the money you contribute to a traditional IRA can be tax-deductible if your modified adjusted gross income is below a certain amount, using this type of IRA could help you lower your current tax bill. You'll only have to pay taxes on all or a part of your contributions and any earnings when you begin to withdraw them in retirement.
Contributions to a Roth IRA, on the other hand, are not tax-deductible—but you see a benefit later on, because you won't have to pay federal taxes on qualified withdrawals. No matter which IRA you choose, you typically have until April 15 of each year to make your contribution for the previous tax year.
Because of the tax differences, a traditional IRA is usually considered more advantageous for people who expect to be in a lower tax bracket in retirement. A Roth might be better for you if you anticipate that your tax bracket will be higher when you retire. If there's a chance you may need to tap into your IRA before you're 59½, you're also probably better off with a Roth, because your contributions to a Roth can be withdrawn at any time without taxes due.
No matter which IRA you choose, you typically have until April 15 of each year to make your contribution for the previous tax year.
Another big difference between the two is that with a traditional IRA, you're required to start taking withdrawals at age 70½. With a Roth there are no withdrawal requirements for the original account owner, so if you're planning to use your IRA as another way to keep on investing for your heirs, a Roth may be the better choice for you. (Your heirs, however, will have to take distributions upon inheriting your Roth IRA.)
There are also a whole slew of rules, regulations and limitations that have to be considered. For instance, you're no longer eligible to contribute to a tradtional IRA if you're at least 70½ and you can only contribute to a Roth for tax year 2015 if your modified adjusted gross income is $131,000 or less ($193,000 or less for couples filing jointly). For tax year 2016, you may contribute to a Roth if your modified adjusted gross income is $132,000 or less ($194,000 or less for couples filing jointly). Because of all the wrinkles, it's best to check with your financial advisor and your tax specialist before making your decision. They can walk you through all the considerations that apply to your situation.
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