Soror Kate ART VT
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When you invest in a "traditional' IRA, you may be able to deduct some or all of your contribution from your income before it is taxed. Essentially, you are not taxed on that money right now, you are taxed on it when you use it, hopefully at retirement. The thinking behind this is that you will be making less when you retire, so your tax will be lower, allowing you to defer tax until you will pay less of it. Of course, there are things, such as a high-ish income, that can keep you from being able to deduct it at all, in which case you need to see a financial advisor about other types of investing.
With a Roth IRA, you don't deduct anything now, so you are paying tax on the money and then putting it away. On the flip side, when you retire and use the money, you aren't taxed on the interest as you would be if the money were in a savings account or other investment vehicle. Also, with a Roth IRA, you have more access to your money if you need it, since you've paid tax on your principal already.
jI use a Roth IRA, since I make very little and can't use the deduction. This way, the money is NEVER taxed, not now, and not later. What's 'best' is different for each financial situation, so talk to your tax professional or financial advisor. And let me know if I can be of any further assistance. |
lm050254
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traditional Ira, let you deduct your contribution in the year that is made and you don't pay taxes on that money until you retire that most likely you will be in a lower tax bracket. If you withdraw b efore age 59 1/2, besides paying tax in that money you will have to pay a 10% penalty. A roth Ira is contribution that you made in money that has already been taxed. All the money earned will be tax free when you withdraw at retirament or after age 59 1/2 |
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