Know the differences between Roth and traditional IRAs

Those who are early in their career may put off thinking about retirement. But learning what sets Roth and traditional IRAs apart now can help ensure you make the right choice between the two as you save for later.
By: Edward Jones
 
DEWITT, Mich. - May 24, 2022 - PRLog -- If you're in the early stages of your career, you might not be thinking that much about retirement. That day will arrive eventually, and the sooner you start saving and investing for it, the better.

You may have a 401(k) or similar retirement plan through your employer, but you may also be eligible to contribute to a traditional or Roth (IRA). There are important differences between a traditional IRA and a Roth IRA. You may want to choose one over the other or go with both. Tax-related decisions may impact your IRA choice as well.

What is an IRA?

An individual retirement account (IRA) can be a great way to save for your future. But how do you know which type is right for you? Traditional IRAs and Roth IRAs allow you to contribute up to $6,000 a year, plus an additional $1,000 catch-up contribution each year if you're 50 or older. The key difference is whether you pay taxes on your savings today or in the future.

What is a Roth?

With Roth accounts, you won't receive any tax deductions today but can generally take withdrawals in retirement without paying taxes.1 You may benefit from a Roth IRA if you're young, currently in a lower tax bracket or have most of your investments in traditional IRA accounts or retirement plans and are looking to increase tax diversification and flexibility in retirement.

What is a traditional IRA?

With traditional IRAs, you may be eligible to take a tax deduction today and delay paying taxes on withdrawals until later, when you begin taking them. This option might make sense if you're in a higher tax bracket today than you expect to be in retirement.

How we can help

Talk to your Edward Jones financial advisor today to discuss which type of IRA may be right for you.

Important Information:

1 Earnings distributions from a Roth IRA may be subject to taxes and a 10% penalty if the account is less than five years old and the owner is under the age of 59½ at the time of the distribution. Contributions to Roth IRAs may be removed at any time without tax or penalty.

2 Your traditional IRA contribution may be deductible depending upon your participation in an employer-sponsored retirement plan and your tax filing status.

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Edward Jones - Mae Luchetti
***@edwardjones.com
517-669-8817
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