Should you contribute to a Roth IRA or a Traditional IRA?

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
than limit

Taxable compensation
for the year

Taxable compensation
for the year

 

As you can see, they are the same. Now for some differences:

 

Roth IRATraditional IRA

Taxes Assessed

BEFORE Contribution

AFTER Contribution

Income Limits

Yes (see here

No (other restrictions apply)

Age Limit (Can Contribute
Up to…)

No Age Limit

Year you reach 70½

Required Minimum
Distribution (RMD)

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
plus regular income tax
if withdrawn before age 59½

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!

Leave a Reply

Your email address will not be published. Required fields are marked *