Today’s Puzzle:
Maybe you know you need to contribute somewhere or you’ve always contributed to a traditional IRA but have been wondering about the Roth. Nikki explains the similarities and differences between the two and explains the long-term benefits.
[spp-player url=https://financialpuzzle.podbean.com/mf/play/e1ctj6/156_-_NIKKI_EARLEY_-_TRADITIONAL_VS_ROTH_adhap.mp3]
(Click the featured times below to jump forward in the episode)
The Solution:
Do you know the difference between a traditional IRA and a Roth IRA? Before you determine which one is right for you, it’s important to understand the difference between the two. What are the tax ramifications? What are the contribution limitations?
Both accounts require you to have earned income from a job. There are also income limits to how much you can contribute (or if you can contribute) as well as penalties if you withdraw the money before 59 and a half, with a few exceptions.
Statistically, more people have a traditional IRA than a Roth IRA, but why? Nikki talks through the different factors at play there. Considering the impact coronavirus has had on the economy, it’s worth understanding the long-term benefits of a Roth IRA. In retirement, a Roth IRA could give you more options with how your taxes are done when you withdraw from your account.
In many cases, contributing to a Roth IRA will be helpful in the future, especially if you are younger. But there are still cases when it may make sense to stick with the traditional IRA. Talking with your advisor should help find the best fit for you and your financial plan.
Listen to the full episode or click on the timestamps below to hear more specifics when it comes to a traditional vs. a Roth IRA.
1:11 – Nikki shares what her family is up to.
2:39 – There are a lot of differences between the traditional and Roth IRA.
4:00 – When you pay taxes on the Roth IRA and why that matters.
4:40 – What do the Roth IRA and traditional IRA have in common?
6:43 – Why have people have contributed to traditional IRAs instead of a Roth IRA?
9:13 – Why can a Roth IRA be so powerful?
11:34 – When is a Roth IRA a better choice?
12:48 – When should you contribute to a traditional IRA?
14:31 – Your advisor should be able to help determine which is best every year.
The Full Picture:
[spp-tweet tweet=”The important thing not to forget is that the income that you are taking from your traditional IRAs affects whether or not your Social Security benefits will be taxed, where a Roth does not.” – Nikki Earley]
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