Skip to main content

Roth IRA vs. Traditional IRA


Individual Retirement Accounts (IRA) come in two types, Roth and Traditional, and there are several basic differences between them. 

The biggest difference between these two types of IRAs deals with how the distributions are taxed.  Traditional IRAs allow the IRA holder to take a current tax year deduction for the amount which they contributed to the IRA up to an annual limit.  When the IRA holder takes a distribution out of the IRA during retirement, however, each dollar of the distribution is taxed as income in the year it is withdrawn.  Thus any investment earnings in the traditional IRA are taxed deferred until withdrawn. Earnings in a Roth IRA, however, are tax free when withdrawn, but do not provide a current tax year deduction. 

For those covered by an employer sponsored retirement plan traditional IRAs have income limits pertaining to the amount that the account holder may deduct on their taxes; however, anyone can make a nondeductible contribution regardless of income.  Conversely, you may only contribute to a Roth IRA if your income is below a certain amount.

Another difference is that Roth IRAs do not require a Required Minimum Distributions (RMD) from the account when the account holder reaches age 70 ½ where traditional IRAs do.
Finally, with a traditional IRA there is a 10% penalty on withdrawals prior to attaining age 59 ½ unless an exception applies.  For Roth IRAs this penalty only applies to the earnings withdrawn and not the contribution amount.

Please note that we do not provide tax advice and you should consult with a qualified tax advisor regarding any tax questions. 

White House Financial & Settlement Consulting helps families live an easier and less stressful life through the proper management of their financial resources.  We do this by acting as our clients’ trusted advisor providing a personal touch customized to the client’s needs!  Please visit our web site at www.whitehousellc.com for more information!

Popular posts from this blog

LIEN RESOLUTION!

You probably know us best for our Plaintiff Focused Structured Settlement Consulting services.  You may not know that we also help plaintiff attorneys and their clients resolve those nasty LIENS that threaten your hard won settlements through our partnership with PROVIDIO!
Please click the link below for more information on our lien resolution services:




If we can assist you with your lien resolution or structured settlements please call us at (734) 433-1670 or email cyril@whitehousellc.com.
www.whitehousellc.com

NEW FIRM BROCHURE!

We just updated our firm brochure. Download it is it is helpful!


For 20 years we have been Michigan's premier Plaintiff Focused Structured Settlement Consultant. Please contact us early at (734) 433-1670 or cyril@whitehousellc.com and let us help you and your clients maximize your hard earned settlement dollars call!  www.whitehousellc.com

Recycled Annuities” a Bad Alternative for Funding a Structured Settlement

When considering a structured settlement, brokers, attorneys, judges, and settlement claimants are best served by a structure that is tax free and funded by a highly regulated and rated insurance company. Click on the following link for more information on this topic in this excellent article on the American Bar Association (ABA) web site!
ABA Recycled Annuities Article
For 20 years we have been Michigan's premier Plaintiff Focused Structured Settlement Consultant. Please contact us early at (734) 433-1670 or cyril@whitehousellc.com and let us help you and your clients maximize your hard earned settlement dollars call!  www.whitehousellc.com