Traditional IRA VS Roth IRA
An Individual Retirement Account (IRA) is an account set up at a financial institution that allows an individual to save for retirement with tax-free growth or on a tax-deferred basis.
A Traditional IRA lets you postpone taxes and any earning that grow tax-deferred until you withdraw them in retirement. You can deduct the maximum annual contribution on your income tax return. For 2021 the maximum contribution limit is $6,000, or $7,000 if you’re 50 or older. You must begin taking required minimum distributions (RMD’s) from your account by April 1 of the calendar year following the year you turn 72 (age 70 ½ if you attained age 70 ½ before 2020). A Traditional IRA is best suited for retirees who expect to be in a lower tax bracket than they were in pre-retirement.
A Roth IRA lets you contribute after-tax dollars which grow tax-free and can be withdrawn tax-free. There are earnings limits but no required distribution at 72. The 2021 contribution limit is up to $6,000, or $7,000 if you’re 50 or older. Individuals age 59 1/2 or older holding accounts for at least 5 years can withdraw money without paying federal taxes. You pay taxes on your money upfront, let your money compound, and then withdraw in retirement tax-free.
Disclaimer: Past performance is not indicative of future results. Starfox Financial Services, LLC makes no promises or guarantees. Investments will go up or down depending on market conditions. The information presented is general in nature and not specific to any investor. Starfox Financial Services, LLC does not give tax or legal advice. Please consult your advisor for how this may relate to you.
Source: Charles Schwab
