Rich with a Roth?

June 28, 2011
Rich with a Roth?

In today’s volatile economy, experts know picking the best IRA can be tricky.

“Since Roth and Traditional IRAs are investment shells, they’ll perform as the underlying investments perform,” certified financial planner Kimberly Howard tells PINK. Traditional and Roth Individual Retirement Accounts (IRA) could save you thousands of dollars.

Which to choose?

“Traditional IRAs are tax deductible, since you get a tax deduction now you will be responsible for taxes when you withdraw the money,” she says. “Roth IRA contributions are made with after tax money and they grow tax-free. Tax-free distributions will usually outweigh those

taxable distributions.” But, “Don’t let the tax deduction rule your IRA selection,” Howard warns, as “it’s best to pay the taxes from non-IRA money.”

Experts say the plan you pick should depend on your financial situation and plans for future spending; if joint-filing, you can make a full contribution if your Adjusted Gross Income (AGI) is less than $169,000 and $107,000 is single-filing.

Howard says Roth IRAs are better for people who think they may make more money in the future. “Your AGI can be found at the bottom of your 1040 tax return. Not only is your AGI a factor, but your income tax filing status.” Plus, if you’ve got a retirement plan at work, your tax-deductible contribution to a Traditional IRA may be “phased-outbased on your AGI.”

The big difference between the two, researchers say, is the way your taxes are treated. If you earn $50,000 a year and put 4 percent in a Traditional IRA, you can deduct the contribution from income taxes. That way, you only have to pay taxes on the remaining $48,000 in income to the IRS.

Bonus PINK Link: Get more IRA tips from Howard in our online exclusive.

By Amanda Wikman

“You cannot plough a field by turning it over in your mind.”  Unknown