5 Things Everyone Should Know About IRAs
IRAs are one of the best tools you can use to save and invest for retirement. When used the right way, the tax benefits can save you lots of money and put you in a better position to financially flourish in retirement. Here are five things everyone should know about IRAs.
Both Roth IRAs and traditional IRAs have great tax benefits, but what separates them is when you receive the tax break. With a Roth IRA, you contribute after-tax money, so your investments get to grow tax-deferred, and you get to take tax-free withdrawals in retirement. You technically contribute after-tax money in a traditional IRA, but you may be eligible to deduct your contribution, so your tax break is still on the front end. When deciding which account you should choose, it should come down to your current tax bracket versus your likely tax bracket in retirement.
If your current tax bracket is likely lower than what your tax bracket will be in retirement, it makes sense to go with a Roth IRA because you get to pay money on the taxes now, instead of later when it'll be more expensive. If your current tax bracket is likely higher than what it'll be in retirement, you should go with a traditional IRA because it makes sense to take the tax break now when it could be more helpful.
Source Fool.com
