Differences Between Traditional and Roth IRA Mercer Advisors Epstein & White

When it comes to planning for retirement, Individual Retirement Accounts (IRAs) are a popular investment option. There are two main types of IRAs: traditional and Roth. Both have their own distinct features, advantages, and drawbacks. In this article, we will explore the key differences between a traditional and a Roth IRA.

Tax Treatment

One of the main differences between a traditional and a Roth IRA is the way they are taxed.

  • Traditional IRA

Contributions to a traditional IRA are tax-deductible, meaning you can deduct the amount you contribute from your taxable income, thereby reducing your overall tax burden for the year. However, when you withdraw funds from your traditional IRA during retirement, your withdrawals will be taxed as ordinary income.

  • Roth IRA

On the other hand, contributions to a Roth IRA are made with after-tax dollars, so you don’t get an immediate tax break. However, the benefit comes during retirement when you can make qualified withdrawals tax-free. This can be an advantage if you expect to be in a higher tax bracket during retirement.

Income Limits

There are income limits associated with both types of IRAs, which may affect your eligibility to contribute.

  • Traditional IRA

While there are no income limits to contribute to a traditional IRA, there are limits that affect the tax deductibility of your contributions. If you or your spouse are covered by a workplace retirement plan, your ability to deduct contributions may be reduced or eliminated based on your modified adjusted gross income.

  • Roth IRA

Roth IRA contributions are subject to income limits. If your income exceeds the specified limits, you may not be able to contribute directly to a Roth IRA.

If you’re interested in optimizing your retirement account strategy, talk to us, and we can help guide you–whether it’s a portfolio rebalance or a retirement account rollover! Reach out to us today for a complimentary review of your financial situation.

 

Source:
Epstein & White is a tradename. All services provided by Epstein & White investment professionals are provided in their individual capacities as investment adviser representatives of Mercer Global Advisors Inc. (“Mercer Advisors”), an SEC registered investment adviser principally located in Denver, Colorado, with various branch offices throughout the United States doing business under different tradenames, including Epstein & White. Information contained herein is for informational and illustrative purposes only and general in nature. It should not be considered investment advice or a recommendation to buy or sell any type of securities or insurance products and no investment decision should be made based solely on any information provided herein. Investing involves risk, including the possible loss of principal. Diversification and asset allocation does not ensure a profit or guarantee against loss. We provide this information with the understanding that we are not engaged in rendering legal, accounting, or tax services. We recommend that all investors seek out the services of competent professionals in any of the aforementioned areas.