Roth Vs. Traditional IRA

There are many schemes available to people who want to save for their retirement. Yet the ones that are the most popular are the regular or Traditional IRA savings and the relatively new Roth IRA. To understand the concepts of the Traditional IRA and the Roth IRA,Guest Posting you should know what an IRA actually is.

IRA stands for Individual Retirement Arrangements. More commonly, they are also known as Individual Retirement Accounts. Both are saving plans available to anyone who has a taxable income, but they are subject to certain eligibility laws. An individual can make contributions only from compensation income, which can include wages, salaries, fees, tips, bonuses, commissions, taxable alimony, and separate maintenance payments. It does not include incomes from pension or investments.

Traditional IRA

Individuals can make contributions if they have not reached seventy and a half years of age. The eligibility rules vary from individual to individual, depending on factors such as age, income, marital status and participation in an employer-sponsored retirement plan. For example, a single person not covered by any employer-sponsored retirement plan can deduct his or her full contribution, up to the lesser of the compensation or contribution limit. Withdrawals from Traditional IRAs are subject to tax. Also, a required amount of distributions have to be made in order to avoid tax.

Roth IRA

Contributions made to the Roth IRA are tax-deductible but the earnings accrued from them are not. They are a popular way to save on tax. Also, there is no age limit to make a contribution to these accounts. This means that, unlike the Traditional IRA, with a Roth IRA, people over the age of seventy and a half years can continue to contribute funds to the IRA account. Also, it is not mandatory to make any minimum required distribution. Moreover, the contributions made to a Roth IRA are never tax-deductible, but they may or may not be tax-deductible in case of the Traditional IRA, depending on factors such as the individual\’s tax filing status or adjustable gross income.