Retirement Planning
Traditional IRA
IRA's all have very similar qualities about them. Traditional IRA's are different by being a tax-differed investment. To be tax-differed simply means that you can invest in your Traditional IRA before you are taxed. When you contribute some of each paycheck to your Traditional IRA, you will be taxed on what is leftover. When you eventually retire, you will be taxed on your withdrawals. So you can enjoy a lifetime of tax-differed savings!
Roth IRA
Roth IRA's are a retirement account that is after-tax contributions. This allows for you to contribute to your account after you have been taxed. Contributions are not tax-deductible and you do have limitations on how much you can contribute annually. However, when retirement rolls around, you will not be taxed on your withdrawals.
Some IRA’s have contribution limitations and tax consequences for early withdrawals. For complete details, consult your tax advisor or attorney. Distributions from traditional IRA’s and employer sponsored retirement plans are taxed as ordinary income and, if taken prior to reaching age 59 ½, may be subject to an additional 10% IRS tax penalty. Converting from a traditional IRA to a Roth IRA is a taxable event. A Roth IRA offers tax free withdrawals on taxable contributions. To qualify for the tax-free and penalty-free withdrawal or earnings, a Roth IRA must be in place for at least five tax years, and the distribution must take place after age 59 ½ or due to death, disability, or a first time home purchase (up to a $10,000 lifetime maximum). Depending on state law, Roth IRA distributions may be subject to state taxes.