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Roth vs Traditional IRA: Which is Best for Retiring Seniors

By Ruby Cemental

Saving for retirement is definitely important. It's good to know that, once you get there, you'll be able to truly enjoy living out the rest of your life worry-free. IRAs are helpful when it comes to retirement saving, but it's not always easy to know which one is the right one for your particular situation; which leads to the question: Between Roth and Traditional IRAs, which is best for retiring seniors? What follows are a few of the differences between the two.

Basic Overview

For starters, it's important to understand the difference between a traditional IRA and Roth IRA. 

  Roth IRA Traditional IRA

Tax

Contributions are taxed. Withdrawals are not taxed. Contributions are not taxed. Withdrawals are taxed.

Distributions Begin

Age 59.5 Any time

Age Limit

No age limitations on contributions. No contributions allowed after 70.5 years old.
Deductibility Contributions are never deductible Contributions may be deductible
Eligibility and Income Limits Income caps apply and may prevent taxpayers from contribution No income caps

Roth IRA distributions are not a requirement nor are any withdrawals taxed. Even though a Roth IRA has many benefits, it also has strict income guidelines that must be met before you can qualify for one.

The basic difference is that instead of being taxed when you take the money out, you’re taxed when you put the money in. It’s debatable which scenario is better or worse, you just have to decide which type of IRA is a better fit for you financially.  

Tax Breaks

When deciding between a Roth or Traditional IRA, one of the more important factors to consider is the ability to get tax breaks upon contributions. With a Roth IRA, contributions are never deductible, which, without question, should be considered carefully.

Traditional IRAs, conversely, do give breaks on contributions; however, your eligibility to deduct depends on whether you meet certain requirements, like whether you are an active participant of an employer-sponsored plan in the year to which your deduction applies. For some, freedom from taxes makes the Roth a better option. Again, it depends on what your situation calls for.

Income Limits

There are income limits to take into account, as well. For instance, anyone who is younger than 70-1/2, with earned income, can contribute to a traditional IRA. Roth IRAs, however, have income-eligibility restrictions: Single tax filers, for instance, must have modified adjusted gross incomes determined by the IRS.

Withdrawals

Regarding withdrawals, one major difference between Roth and Traditional IRAs is that with Traditional IRAs, it is mandatory to start taking out required minimum distributions (RMDs) when you turn 70-1/2. With Roth IRAs, on the other hand, it is not mandated that withdrawals be taken out during the owner’s lifetime. So, if you don’t need the money, Roth IRAs can continue to grow tax-free throughout your lifetime.   

Without question, the type of individual retirement account you choose can significantly affect you and your family’s long-term savings. So understanding the variance between the two is worth understanding in order to select the best one for you.

If you have further questions or if you would like Caring Senior Service to help with what the best options are for you, please contact us.  

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Tags: Retirement, Finances

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