IRA or Roth IRA?
by
Gregory Grant
There are a variety of ways to put money away for retirement, and one of the most common has been the traditional Individual Retirement Account or IRA. With this kind of IRA, contributions of up to $2,000 dollars can be made per year. Under certain income limits, the contribution can be tax deductible.
"The traditional IRA account obviously can be invested in a variety of different investments, and grows without being taxed throughout your lifetime til you're 59-1/2, at which point you can choose to start taking the money out where you would pay the taxes on the amount that would come out of the account," says Subha Barry of Merrill Lynch.
By age 70-1/2, minimum distributions must begin. In 1998, congress created the Roth IRA. With the Roth, up to $2,000 dollars can be contributed within specific income guidelines. If you qualify, the Roth IRA offers some advantages over the traditional IRA.
"The first one is the fact that it grows without ever being taxed. As long as you've held it five years, all the growth on it as well as, remember it's after tax dollars that you put into it, everything is tax-free, perpetually. The second advantage is for a person that is continues to work after they're 70-1/2, you can make contributions to your Roth IRA, but you cannot to your traditional IRA," Barry said.
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