Figuring out what the best type of investment for you and your long term financial goals can be complicated; there are a lot of factors to consider. For example, should you invest in a Roth IRA or a traditional IRA? Cassedy and Company can break it down for you and help you make the best decision.
Let’s start with the basics: why should you consider an IRA? An individual retirement account (IRA) lets you start planning now for financial security after you retire. It’s wise to start planning now for that future, and IRAs are one way to do so. These accounts are specifically designed to help you save for retirement and offer advantages that other types of accounts can’t offer.
Traditional IRAs allow you to make contributions that are federal tax-deductible until they are withdrawn, which not only provides the potential for an immediate tax benefit but also enables tax-deferred growth. This means that if you don’t need your IRA money, you can set it aside and let it grow for the future.
A Roth IRA is similar, but the biggest difference is that while contributions may not be tax deductible, the eventual withdrawal may be federal tax-free as long as certain requirements are met. This could potentially allow you access to those funds even before you retire.
Keep in mind – you always have access to the money in your IRA, but there may be certain restrictions, federal taxes and penalties based on your age and the type of IRA you own. The basic rule of thumb is that if you’re under the age of 59 ½, you may pay federal income taxes on the withdrawn amount as well as potential federal tax penalties. If you are past the age of 59 ½, you may withdraw funds from a Roth IRA you’ve owned for more than five years without paying a federal income tax, but you would pay federal income tax on that same withdrawal from a traditional IRA. Past the age of 70 ½, a traditional IRA has an annual minimum distribution with a heavy tax penalty on the remaining amount, while a Roth IRA does not require any distribution as long as the original owner is alive.
The best thing to do when considering opening an IRA is to talk to your financial advisor to determine what type of account is best for you. Your advisor can also help you identify that types of investments you’d like to make with your IRA, including mutual funds, managed accounts, and individual stocks and bonds. Let Cassedy and Company set up a plan for you today!
