Traditional IRA and Roth IRA

Set aside money for retirement and get a tax deduction on those funds.

 

A traditional IRA is an individual retirement account that offers tax advantages to savers. The contributions you make may be fully or partially deductible, depending on your situation. Investments grow tax-deferred and you are not taxed on gains until you withdraw them. There are two types of IRAs. The other is a Roth IRA, which you contribute to with after-tax funds and then draw the money out tax-free in retirement.

 

This account offers a tax-advantaged way to save for retirement in addition to, or in place of, an employer-sponsored retirement account. The money you contribute can be invested in stocks, bonds, mutual funds CDs and other investments.

 

If you’re looking to reduce your tax bill, this type of retirement account is especially attractive because you can contribute to it right up to the tax filing deadline. There may be income limits to contribute to a traditional IRA if you're an active participant in your company’s retirement plan. Please check with your tax advisor or one of our financial professionals to see if you're eligible to contribute. Keep in mind, early withdrawals prior to age 59½ may be taxed as income and assessed a 10% penalty.

 

Distributions in retirement are taxed as ordinary income.

 

Grow your retirement savings with after-tax money for tax-free withdrawals.

 

While a traditional IRA gives you a tax break at contribution time, a Roth IRA provides no tax break for contributions, but earnings and withdrawals are generally tax-free.

The contributions you make to a Roth IRA are not tax-deductible, however those contributions and investment earnings grow tax-free, meaning you don’t have to pay taxes on the funds when you withdraw them. Another benefit to the Roth IRA is its flexible withdrawal rules. If you run into a financial need, you can withdraw your contributions (not earnings) at any time without having to pay income taxes or an early withdrawal penalty.

Generally, a Roth IRA helps you manage your tax burden in retirement. Getting the most tax savings will depend on whether you think your annual income and tax bracket will be lower or higher in retirement. Younger people tend to be in a lower tax bracket now than they’ll be in retirement, which makes a Roth IRA ideal.

You can contribute to a traditional and a Roth IRA during the same year, as long as the total amount does not exceed the maximum allowable contribution limit.