Opening up a Roth IRA account is becoming more and more popular amongst people who are looking to plan for the future. However, it’s important to make sure that you know the difference between Roth IRA and traditional IRA accounts because both have their own benefits and some may be more suitable to you than others.
The main difference between the two is the way tax is handled. With a Roth IRA the contributions are always non-deductible which makes a Roth IRA a tax-sheltered account. On the other hand a traditional IRA is tax-deferred and the contributions can be both deductible or non-deductible. This is one of the main reasons why a Roth IRA is increasing in popularity.
Another big difference between the two is that Roth IRAs are a lot more flexible when it comes to age. If you’d like to contribute to your IRA account throughout your entire life then a Roth IRA is probably the right one for you because there is no limit on age. However, with a traditional IRA you can’t contribute after you reach 70 and a 1/2 years old.
There are also differences when it comes to the limitations on income. If you have a large income then a traditional IRA may be the only choice because Roth IRAs have income caps which are dependent on whether you live on your own and whether you file individual tax returns. Traditional IRAs don’t have any sort of income cap so are much more suitable for those with a large income.
Different factors such as whether you want a spousal Roth IRA or an individual one will affect the income cap that will be imposed on your account.
While it is not possible to say that there is an obvious best choice when it comes to the difference between a Roth IRA and traditional IRA because they both have their own advantages, for the average person saving for their retirement a Roth IRA is more likely to be a better option. However, it always helps to talk it through with your financial adviser first otherwise you may not have the required financial knowledge to make the right decision to you. Trying to work out how much you can deposit into your Roth IRA can be quite difficult and a financial adviser will be able to help you do so in a clear and easy to understand manner.
