There are a few differences between a traditional IRA and a Roth IRA, and it is important that you understand these distinctions when you are choosing your retirement savings platform. Both types of retirement savings accounts can be beneficial, and you should talk with an accountant or qualified financial advisor to make the decision based on the best tax savings strategies for your individual needs.
Leveraging Tax Deductions on Retirement Savings
One of the biggest benefits to a traditional IRA or a Roth IRA is that you can leverage your tax deductions to minimize the amount of taxes that you need to pay. But, the tax savings work out in different ways.
- A traditional IRA allows you to deduct the up-front contributions when they are made.
- A Roth IRA doesn’t allow the initial contributions to be deducted on your taxes, but the earnings on the account are tax-free as long as certain conditions are met.
Do You Qualify for a Roth IRA?
Many people prefer a Roth IRA, but not everyone qualifies for this type of account. The IRS has put several requirements in place:
- In order to contribute to a Roth IRA account, it is necessary that your gross income is below a certain threshold, which changes depending on your marriage status and whether you are filing separately or jointly.
- There are no age limits on your contributions to a Roth IRA account, but there are annual contribution limits. These annual limits are the same for both a traditional IRA as well as a Roth IRA, and these limits need to be considered if you are contributing to both a traditional and a Roth account.
You can talk with your accountant to decide whether you qualify for a Roth retirement savings account.
Also, make sure that you talk with your accountant or financial advisor about a Spousal Roth IRA, because you might quality to make contributions to an account for your spouse if certain income requirements are met.