Do Your Research When You Compare IRA Vs Roth IRA

Since its inception in 1997, the Roth IRA has steadily climbed the popularity chart of retirement related plans. It has gained popularity due to various newly introduced benefits. However, the traditional IRA too has certain advantages which are not offered by the new Roth IRA. IRA vs Roth IRA are retirement savings plans to assist you in saving for your life after work is over, but they do have their differences that sets them apart.

A major difference between the two exists over the issue of tax on the IRA contribution. In regular, traditional IRAs, contributions are tax-deductible. You do not need to pay taxes on your IRA annual contribution. However, it is to be noted that the tax is deferred till the moment of withdrawal. The withdrawal is generally allowed after 59 years till 70 years. Also, in traditional IRA, you can contribute only until the age of 70 years.

On the other hand, the annual contributions to a Roth IRA come under the tax net. They are not tax deductible. However, the interest that keeps on accumulating in your account is completely tax free. Further, if the individual has reached the age of 59 years or the account is five years old; the withdrawal amount is tax free. Further, there is no age limit for contributions in a Roth IRA. You can continue contributing even after the stipulated age of 70 years.

In this comparison of IRA vs Roth IRA, it is clear that everybody's obvious choice would be a Roth IRA account. However, what most don't realize is that not everyone is eligible for opening it. A traditional IRA can be opened by anyone who has a taxable income and whose age is below 70 years. On the contrary, a Roth IRA is open only for those who are single and have an income below $114,000 (for 2007) or those who are married (and filing a joint return) and have a joint income below $166,000 (for 2007).

The tax-deferred or tax-free nature of maximum annual contributions differentiates the two types of IRA in focus. The difference matters when you are starting a new IRA. But if you are starting an IRA late in your earning life and the rate of taxation is steady or decreasing while your salary increases, it does not make much of a difference to chose between a regular IRA and a Roth IRA. However, this is a very rare situation as people begin contributing to a retirement plan quite early in their earning life. For those who are planning to open an IRA, the variables when you consider IRA vs Roth IRA do matter a lot as they have a direct impact on the amount available to you at the time of withdrawal.