Individual Retirement Accounts have been used by many investors over the past years as a way to plan for their retirement. Recently, cutbacks in wages, layoffs, and a high sustained unemployment rate have led many investors, both young and old, to consider seeking out options to cover themselves if employment difficulties arise later in life. Many workers have been frightened over the fact that numerous individuals who had worked at a company for decades or who were close to retirement were suddenly left without a job, and as a result more efforts have been made on the part of many to plan for their retirement.
While 401(k)s are a popular option for many employees, some are supplementing these retirement plans with IRA investment opportunities, which can also be a way that almost anyone can save for their retirement. However, when it comes to choosing an IRA, many individuals may be unsure as to whether a traditional or Roth IRA will be best for their situation.
Recently, changes in conversion rules from traditional IRAs to Roth accounts were made available to investors who wish to convert a traditional Individual Retirement Account into a Roth account, but some still feel that traditional IRAs may be more beneficial at the present time.
One of the main reasons that individuals choose either a traditional IRA or a Roth account is because of the tax benefits. Obviously, the reasons behind choosing either a traditional IRA or Roth IRA will be heavily personal, but there are advantages and disadvantages to both.
Yet, in terms of taxes, many argue that, depending upon an individual’s situation, one account may be more profitable than the other. Traditional IRAs allow investors to write off their contributions each year, which can be helpful at the present time when it concerns an investor’s income. For instance, if an investor puts a set amount towards their traditional IRA, they can write that amount off of their yearly income, which may help them when it comes to paying taxes at the present time.
However, what many see as a drawback for a traditional IRA is that taxes are levied on earnings, which may cut down on the amount an investor may gain later in life. Roth IRAs, on the other hand, do not allow an investor to write off contributions, but earnings can be withdrawn tax-free after a certain age.
Again, many see Roth IRAs as a better option since earnings are withdrawn tax-free, but there are still investors who choose traditional IRAs for their personal situation. While these types of retirement accounts have been beneficial for numerous individuals and are being sought out by current investors at the present time, advisers often suggest that a great deal of research go into these types of Individual Retirement Accounts before an investor begins putting money towards their retirement.