Traditional vs. Roth IRAs

While traditional and Roth IRAs have many similarities, they also have many differences. Both have the same annual contribution limits. Which one is the better choice for you will depend on eligibility requirements for both, as well as factors including the differences in tax benefits (both while you are contributing and after retirement), contribution age limits, income limits, and rules for required minimum distributions.

Traditional vs. Roth IRAs: Which Is the Best Choice?

Espe, DanielBy Dan Espe, IRA Specialist, Bell State Bank & Trust

With three flavors to choose from—Roth, traditional deductible or traditional nondeductible—figuring out which IRA is right for you can be confusing. But everybody who plans to retire ought to have at least one of them. Outside of your corporate retirement plan, an IRA is the best way for you to accumulate tax-advantaged retirement savings. Consult your tax advisor to see if this option is for you.

Our favorite IRA is the Roth. Unlike those from traditional IRAs (both deductible and nondeductible), withdrawals from Roth IRAs after age 59 1/2 are generally not taxed. You pay your taxes on the front end by contributing after-tax dollars. So Roth IRAs enable savers who remain in the same income bracket (or higher) at retirement to accumulate more money than even tax-deductible IRAs do. To see how your investment would fare in each type of IRA account, use our comparison calculator.

Besides fostering tax-free growth, the Roth IRA has flexible withdrawal rules. You can take out contributions (but not gains) for any reason without penalty or taxes. And after you reach age 59 1/2 , and have had the account open for five years, you can withdraw your gains tax- and penalty-free as well.

Trouble is, everyone isn’t eligible to open a Roth IRA. Who qualifies this year? Joint filers with modified adjustable gross income (MAGI) below $179,000 and individuals with MAGI below $122,000 qualify to contribute (although eligible contributions start to phase out at $169,000 for joint filers and $107,000 for individuals).

Both Roth and traditional IRAs allow contributions of $5,000 per person ($6,000 if you are age 50 or older at the end of the year).

For a complete rundown on the rules for contributions, withdrawals, rollovers or transfers for all IRAs, please feel free to contact me directly at 701-451-3027. Also remember, if your employer matches your 401(k) contributions, you should contribute up to the matching limit before establishing an IRA.

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