Traditional vs. Roth IRA
Most people put a lot of time and effort into planning their week’s vacation every year, but they don’t plan for the longest vacation of their lives….retirement! The Traditional IRA is essentially based on the same premise as a 401(k): get a tax deduction now, pay taxes later. The Roth IRA on the other hand, allows you pay taxes now and you’ll never have to pay again! The major benefit is that you’re paying taxes on a smaller amount and any growth that occurs in the account is yours….tax free! The most you can contribute to a Roth IRA is $2,000 per year or 100% of your earned income, whichever is less.

More Flexibility on Withdrawals
Obviously people are uncomfortable parting with money that they know can’t be accessed until age 60, but the new Roth IRA gives you more flexibility in using your assets. If you’re younger than 59 ½ you may qualify for tax-free and penalty-free withdrawals if the money is used for a first time home purchase or upon death or permanent disability.

Tax Advantages!
Let’s assume that you were contributing $2,000 each year into an IRA account until you decided to retire at age 65. At retirement, your account would be worth the same amount regardless of whether you chose to open a Traditional IRA or a Roth IRA. What would happen if you needed to use the money in your IRA? If your account was worth $500,000 and it was a Traditional IRA, you’d have to declare the amount you withdraw as taxable income for that year. If you wanted to withdraw the entire $500,000, you’d pay income taxes in that year of approximately $140,000!

If you’d been contribution to a Roth IRA, however, you could withdraw the $500,000…tax free! By making the wrong decision, it could have cost you $140,000!

No Required Distributions!
What would happen if you didn’t need to use the money in your IRA account? If you had been contributing to a Traditional IRA, once you reach age 70 ½, you’d be required to take distributions from your account, and those distributions are then taxed at your current income tax rate. If you had a Roth IRA, however, you wouldn’t be required to take distributions at age 70½. No withdrawals are ever required from the Roth IRA until the death of the owner, which makes the Roth an ideal estate planning tool!

There are a number of factors to consider in choosing any course of action when planning for retirement. Please feel free to call me at (585) 512-2313 or e-mail me at KDowejko@SageRutty.com set up an initial consultation, free of charge, to see if you qualify for the Roth. With the help of Sage Rutty’s Financial Planning department, we can design and implement an appropriate retirement plan based on your objectives and financial situation.