To Roth (IRA) or not to Roth (IRA), that is the question...

Are you wondering whether you should start contributing to a traditional IRA or a Roth IRA? Well, first let's make sure you know the difference between the two.

Firstly, both types of IRAs are retirement accounts that allow your investment to compound tax deferred, both have annual contribution limits, and there are income thresholds that may restrict your eligibility to make contributions. Also, both accounts have certain age-related restrictions that dictate when monies can be taken out without incurring a penalty. That is where the similarities end. A traditional IRA is a retirement account that is funded with Pre-Tax dollars and a Roth IRA is funded with Post-Tax dollars.  Any distributions you take from a Traditional IRA will be taxed at your ordinary income rate. With a Roth, you do not get to claim a deduction for making contributions, but that money then grows tax-free in perpetuity, and any distributions you take after age 59.5 are 100% all yours (YES!).  So which is better? Well, generally speaking, if you are young, in a low tax bracket, or are worried about future tax rates increasing, the Roth is a great tool to grow your money tax-free. When you get to retirement age and all of your withdrawal's are tax-free, you will be glad you did!  The traditional is still beneficial to the vast majority of people, especially if you believe you will be in a lower tax bracket in retirement. Make sure you consult your financial professional and discuss if the Roth is right for you!

-Your Friends at Red Oak Financial Group