Should you contribute to a Roth IRA or a Traditional IRA? Like many questions having to do with taxes, the answer is, “it depends.” We know, it’s frustrating to hear “it depends” when you simply want a black and white answer. Unfortunately, the world is more gray than black and white. The good news is that your mom was right; you are special and you are unique. Every individual’s situation is different and there are pros and cons to contributing to a Roth IRA versus a Traditional IRA.
Let’s take a look at both types of IRAs, beginning with annual contribution limits:
| Annual Contribution Limits |
Roth IRA |
Traditional IRA |
|
Under Age 50 |
$5,500 |
$5,500 |
|
Over Age 50 |
$6,500 |
$6,500 |
|
If income is less |
Taxable compensation for the year |
Taxable compensation |
As you can see, they are the same. Now for some differences:
| Roth IRA | Traditional IRA | |
|
Taxes Assessed |
BEFORE Contribution |
AFTER Contribution |
|
Income Limits |
Yes (see here |
|
|
Age Limit (Can Contribute |
No Age Limit |
Year you reach 70½ |
|
Required Minimum |
None |
Yes (begins at age 70½) |
| Withdrawal Penalties |
None, UNLESS you withdraw more than you contributed before age 59 ½ or if you’ve had the IRA for less than 5 years |
10% federal penalty tax |
So, what’s the bottom line? Before you make a contribution, make a tax-planning appointment with us. Why? First, your investment broker is not legally allowed to give you tax advice, and second, it’s important to see it from both an investing side and a tax accounting side. Call us today at (813) 514-8273 to schedule your appointment!
