When preparing for retirement, you have to ensure that you are getting the best return possible to maximize your funds for when the day comes to hang up your boots for the last time. This means that choosing the right plan and assets for your retirement investment is critical. Individual Retirement Accounts or IRAs are designed to be a tax-advantaged vehicle for long term savings and investments. When choosing which IRA to put your investment in, it is important you know the details of each option.
Traditional IRA
A traditional IRA gives you the opportunity to contribute to your account with pre-tax dollars and your investments can in-turn grow tax-deferred until you begin withdrawing from the account. When you do begin withdrawing from the account, the withdrawals are then taxed upon your current tax rate.
Roth IRA
Unlike a traditional IRA, Roth IRA contributions are not tax-deductible. They are qualified to be distributions and therefore become tax-free. Because your contributions have already been taxed in a Roth IRA, you face no taxes on the gains your contributions have earned and withdrawing your contributions after the age of 59 and a half are penalty-free.
The bottom line: both accounts can help you reach your financial goals. One thing to consider when choosing which account to go with is that if you are in a higher tax bracket, you may want to consider a Roth IRA for the potential tax break. Our advisors are happy to help you decipher which account would be best for your retirement.