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Difference Between Roth Ira And Traditional Ira

Explaining The Difference Between Roth IRA And Traditional IRA Investment Accounts

For many people understanding the terms of their retirement savings plans can be quite baffling.  While an employer-based 401k account may be straightforward with its implications, understanding IRA's and how to qualify for the right one may not be as clear.  To begin, you must have some knowledge of the difference between a Roth IRA and a traditional IRA.  For Roth IRA information, the only hurdle for qualifying is complying with the Roth IRA eligibility.  Those eligibility requirements are that you make right at or anywhere under the set income guidelines.

Those perimeters for a married household are a total combined salary of both parties annually to be $170,000 or less.  For a single person that also happens to file as a head of household, they must meet the perimeter of $120,000 per year or less.  There are no age requirements to apply for a Roth IRA account, but to take any withdrawals out you must have the account for at least five consecutive years.  Another big difference between a Roth IRA and a traditional IRA is taxes.  You cannot receive an IRA tax deduction when you invest in a Roth account, but you can with a traditional one.  You must pay taxes upon making any withdrawals from your traditional IRA account which is why you are permitted to deduct it.  With a Roth IRA, the money deposited into the investment is pre-taxed which results in not having to pay any taxes when you make any withdrawals.

You may elect to convert an IRA to a Roth IRA if you meet the above-mentioned qualifications.  To see the value financially with your specific dollar amounts you will be investing, you should always utilize the Roth IRA conversion calculator which can be located on the Internet or through your investment broker.  By utilizing this tool you can visualize how your money can grow and provide you with a timeline of how many years you may need to save to have a successful retirement plan.  Investigate further with the difference between a Roth IRA and a traditional IRA before you make any final commitments.  While you certainly can transfer from a Roth account into a traditional one keep in mind that you cannot switch a traditional into a Roth unless you happen to meet those previously mentioned income requirements. 

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