Retirement Investing With Traditional And Roth IRAs–How Investors Choose Which Options Is Best For Their Situation

Retirement investing through either traditional IRAs or Roth IRAs can be beneficial for some consumers, but there has been questions which have arisen lately due to the fact that some investors have thought of transitioning from a traditional IRA to a Roth account, due to the fact that earnings can be withdrawn tax-free after retirement. Yet, there are some advisors who feel that traditional IRAs can also offer benefits still, despite the fact that some men and women believe a Roth IRA is the best option since there are no required minimum distributions and tax advantages after an investor has reached the age of 70 and one-half, but there are certain considerations that investors must make before they choose which option will be best for their particular situation.

Essentially, what many advisors often suggest is looking at taxes and how they will factor into an investor’s goals, earnings, and the overall amount they may withdraw if they use either a traditional IRA or a Roth account. Consumers who may be in a lower tax bracket after they retire, which can be common, could benefit from a traditional IRA and due to the fact that they are able to write off contributions at the present time and, when the required withdrawals are enacted on this type of investment account, if an investor is in a situation where they will not suffer as a result of taxes on these forms of investments, a traditional IRA can be beneficial.

However, there have been consumers over the past months who have saved a great deal in their traditional IRA and decided to convert to a Roth account due to the fact that they are not required to withdraw money from this type of investment vehicle and there are no taxes on earnings, since contributions will not be taxed. However, there will be taxes on the conversion, in many cases, so this has to be considered as well, but a recent article on Forbes.com stated, “Tax planning should always be considered as you plan your investments, but appropriate diversification should always be your first consideration.” Essentially, consumers must look at their particular financial situation and how taxes will affect any retirement planning, but diversifying one’s retirement portfolio is also helpful when it comes to avoiding problems related to tax penalties, fees related to certain types of retirement income, or unforeseen incidences that could reduce overall retirement funds.

While there have been some investors who have a variety of retirement plans in place, be they Roth IRAs, 401(k)s, or even annuities, looking at how much taxes will be associated with a particular type of retirement investment account, the overall money that can be withdrawn from a retirement investment, and being able to spread these funds out, meaning having some retirement accounts like a Roth IRA that do not require withdrawals after a certain age, can all be beneficial, but when it comes to choosing either a traditional IRA, a Roth IRA, or any other retirement account.  Yet, investors are always prompted to thoroughly look at their financial situation, how their taxes will factor into investing now and withdrawals in the future, and calculating the overall earnings potential and savings that can come from an account when compared to these other factors are the only way that each investor can figure out what form of IRA or alternative retirement plan will be best for their situation and offer the best financial security for their needs or wants after retirement.