Roth IRA Traditional IRA; Key tax benefits: Contributions are made with after-tax money and any potential earnings grow tax-free. The only way that doesn't work out is if you end up having an income less than 38k when you retire. Archived. The key is not use any part of the original contribution to pay the applicable taxes. You've figured out that a Traditional IRA reduces your tax burden now, but a Roth IRA reduces it in retirement. Roth IRA A Roth IRA, as you would imagine, is simply an IRA that, except as discussed below, is subject to the rules that apply to a traditional IRA. Roth - Contribute 5,500 in year 1. Converted a traditional IRA to the Roth IRA. I live in Oregon so there is a 9% state income tax along with the federal tax. If you make too much money to deduct traditional IRA contributions from your taxable income, a Roth IRA is the better option. Only work Sunday-Thursday. Roth IRA vs. If I were you, I'd do Roth for 2 reasons: You are young. Retirement. I don't understand. It's a percentage so you'll pay the same tax if your rates are the same either way. When you contribute, you’re using post-tax money to fund it, but that money is never taxed again as it grows. You can take that 1,210 you saved and put it in a regular brokerage account. Depends on which tax bracket you think you'll be in when you retire. 59.5? Roth IRAs have one main advantage over traditional IRAs: since your investments are made with after-tax dollars, once you reach retirement you’ll get every penny of your savings tax-free. Depends on your marginal tax rate pre vs post retirement. Meaning, funding a Traditional IRA will get you less money in taxes than pretty much any time before. Return to main page . I'm wondering what which IRA is best for me at this age/tax bracket. (See information on withdrawals below.) 2. )With the current tax rates set to expire in 10 years (unless renewed or made permanent) I don't see a Roth as such as bad thing right now if you're in a lower tax bracket. Or are you saying backdoor Roth conversion? Thanks! With traditional, most early withdrawals will trigger a 10% penalty. You don't have to roll them over all at once. video from Vanguard; Notes: It is almost never a good idea to make a non-deductible contribution to a traditional IRA without then doing a Roth conversion, as doing so would mean that your earnings would be taxed. Related Reading : If you’ve maxed out your contributions, you should also consider using a Health Savings Account, which offers an opportunity for $3,500 per year in additional tax-advantaged saving and investing. Do you do weekend nights in a big city or live in a college town? Retirement Accounts (articles on 401(k) plans, IRAs, and more). This special savings plan was created as part of the Taxpayer Relief Act of 1997 and takes its name from its main sponsor, Senator William Roth … You can withdraw the principle whenever you want without tax or penalty. Welcome back guys. So that leaves a "backdoor" Roth (where you contribute to a tIRA, but can't deduct the contribution on your taxes, and then immediately convert it into a Roth) as the only way to put money into an IRA of any flavor. Quite honestly not too sure, that's the million dollar question I'm asking myself. Learn about budgeting, saving, getting out of debt, credit, investing, and retirement planning. But wouldn’t you make too much for Roth? If you're under age 59½ and you have one Roth IRA that holds proceeds from multiple conversions, you're required to keep track of the 5-year holding period for each conversion separately. Some people have in income which doesn't allow them to deduct IRA contributions. 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