March 7, 2022
How do I choose between a Traditional and a Roth IRA?
Consider the tax benefit that may suit you best.
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Anyone with earned income may contribute to a Traditional IRA; deductibility may be limited or unavailable for certain individuals covered by an employer-sponsored retirement plan.
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Roth contributions are not tax-deductible and the individual must meet certain income eligibility requirements.
Click here for more information on deductibility and eligibility requirements.
Consider your tax bracket at retirement or when you intend to begin withdrawing from the plan.
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If you expect to be in a lower tax bracket at retirement, you may prefer a Traditional IRA as funds are taxed in the year they are withdrawn.
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If you expect to be in a higher tax bracket at retirement, you may prefer a Roth IRA as funds are withdrawn tax free for qualified distributions.
How much may I contribute to a Traditional or a Roth IRA plan?
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For tax years 2020 and 2021, the contribution limit is the lesser of 100% of your earned income or:
– $6,000.00 for those under age 50 or
– $7,000.00 for those age 50 and over
Consider setting up an automatic contribution directly from your payroll to your Traditional or Roth IRA. Prior year contributions may be made up until the tax filing date, generally April 15 (not including extensions).
The Takeaway
Choosing the right retirement plan may take some thoughtful consideration of the tax benefits that best suit you. Be sure to talk with your tax or financial advisor. It is important that you are contributing at least a portion of your income to retirement. Start by just getting in the habit. Your future self will thank you!
Resources
Want to find out more? Check out our brochures
These facts and opinions are provided by the Cape Cod 5 Retirement Services. The information presented has been compiled from sources believed to be reliable and accurate, but we do not warrant its accuracy or completeness and will not be liable for any loss or damage caused by reliance thereon.
