Roth IRA V.S. Traditional IRA

When making the choice to invest in an IRA, the decision can seem a bit daunting. You may be wondering what type of IRA would work best for your needs. Additionally, the terminology and volume of information may have become overwhelming.

Mountain West IRA offers multiple retirement savings options to our customers. It’s important to understand that SEP IRA and Simple IRAs as well as individual 401(k) plans all revolve around meeting business needs. If, however, you are attempting to meet your own retirement needs, regardless of your employer, the Roth IRA or Traditional IRA are two options available to you. Did you know that all of these different types of IRAs can be done in a self-directed IRA account?

To begin, let’s take a look at the similarities:

Maximum Contributions: The maximum contribution limit for both IRAs is $5,500 for 2014. The only exception is for those who are age 50 or older. These individuals may contribute an extra $1000 to their IRA as a catch up contribution.

Contribution Deadlines: Contributions to an IRA must be completed by April 15 to count for the prior year.

Here’s a comparison of the Roth IRA and the Traditional IRA:

 

Roth IRA

Traditional IRA

Tax Benefits:

Tax and penalty free growth, and qualified (conditions apply) withdrawals after 5 years

 

No tax breaks for contributions

Tax deferred growth

 

Tax deductions may apply in contribution years

 

Eligibility:

Any age

Earned Income

Income restrictions apply

Under 70.5

Earned Income

No income restrictions

Withdrawals:

Contributions are withdrawn tax-free

 

Earnings are withdrawn tax-free after 5 years and only when meeting certain conditions

Withdrawals of pre-taxed contributions and all earnings are taxed when withdrawn

Penalties:

Non-qualified withdrawals are penalized with income tax and a 10% tax

 

Exceptions apply

Withdrawals prior to 59.5 years of age are subject to a 10% early withdrawal tax

 

Exceptions apply

Minimum Distributions:

None

starting at the age of 70.5

Other Benefits:

After the 5 year holding period, up to $10,000 can be withdrawn (tax and penalty free) to cover first-time homebuyer expenses

Contributions lower your adjusted gross income providing tax benefits

 

Up to $10,000 may be withdrawn (penalty fee but still taxed) to cover first-time homebuyer expenses

 

Although these guidelines provide some great information you’ll want to consult your tax professional for the plan that best suits your individual needs. Regardless of which IRA you select, Mountain West IRA would be happy to help you open your self-directed IRA account. With your self-directed IRA you’ll be able to take advantage of a host of different IRA investment options to assist you in your quest for a happy and comfortable retirement. Please contact Mountain West IRA today to discuss the possibilities.

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