Roth IRA vs. Traditional IRA
A Roth IRA is a personal retirement fund started in 1997 to help encourage people to plan for their own retirement instead of relying on the social security system.
The Roth IRA shares many things in common with a traditional IRA. But there are a few main differences that you should be aware of when deciding which one is right for planning your retirement. Here are a few of them.
The funds contributed to a traditional IRA are tax deductible meaning that you can deduct the amount you contribute to the fund from your income while filing your tax return papers. In a Roth IRA you are not able to deduct the contributions from your income.
A traditional IRA allows for a few penalty free withdrawals, but they have very strict rules and can only be taken advantage of in very specific circumstances. This is a bit frustrating because you can not access your earnings until you retire.
In a Roth IRA you are allowed to withdraw any funds contributed after a five year “seasoning” period.
The looseness of the Roth IRA has led some to use it as an emergency account for unexpected costs. After the 5 years, you can use it for emergencies and if there are none then you have a good start toward retirement.
It is important to pay attention to your personal circumstances befpre diciding how to plan for your retirement.
