Individual Solutions

You have two options when choosing an IRA, a Roth IRA and a Traditional IRA. Each type of IRA offers its own tax advantages, requirements, and contribution limits. See which one best fits your retirement savings needs.

Roth Vs. Traditional Calculator

Traditional IRA

The traditional IRA is one of the most common IRAs available. This type of IRA is funded with pre-tax contributions or rollovers, and the tax on contributions and growth (interest) is deferred until withdrawn.

Advantages of Pre-Tax contributions

  • Reduces your taxable income
  • Pay no taxes until you take a distribution
  • Tax savings equals more take-home pay

May be beneficial if you

  • Are unable to tolerate less take-home pay now
  • Retire or need access to your account in five years or less
  • Are in a higher tax bracket now than you will be at retirement
  • Are in a high tax bracket and need to lower your taxable income

Things to consider

  • Uncertainty about the assessment of future taxes
  • At age 70½ you will be required to begin taking minimum distributions
  • Non spousal beneficiaries subject to specific rules for distribution

Tax savings example

tax-savings

Roth IRA

The Roth IRA is another popular tool utilized in planning for retirement. Roth IRAs are funded with after-tax contributions and rollovers. The money is taxed before being contributed, and then you can receive contributions and qualified earnings tax-free upon withdrawal.

Advantages of Roth contributions

  • Tax-free growth
  • Your contributions and earnings are tax-free once you reach age 59½, and invested for five years
  • Great for disposable income or emergencies at retirement
  • No required minimum distribution provision at age 70½
  • Pass tax-free to your beneficiaries

The Roth IRA may be beneficial if you

  • Are in a lower tax bracket now than at retirement (likelihood of this increases if you have 20 years or more until retirement)
  • Can afford less take-home pay now in exchange for paying no taxes later
  • Want to leave tax-free money to your beneficiaries
  • Have a pre-tax source of funds to use for income, but also need disposable, tax-free income at retirement
  • Are age 30 or less and/or just starting to save for retirement
  • Can wait for five years and age 59½ to use the money

Things to consider

  • Contributions do not lower your income taxes
  • Less take-home pay now (due to taxes)
  • Five year and age 59½ rules apply to everyone