To Roth or Not to Roth?

 QUESTION: HOW DO ROTH IRAS DIFFER FROM CONVENTIONAL IRAS?

With the advent of the Roth IRA program in 1998, investors were presented with a second, equally tantalizing option for their retirement planning needs. Your America’s Tax Solutions™ retirement distribution specialist can explain the differences between the two types and help you decide which option is most appropriate for you.

Roth and traditional IRAs have the same objective: both provide an incentive to save and both provide income after retirement. The primary difference is that the funds in a traditional IRA grow tax-deferred, while the funds in a Roth IRA grow tax-free. Contributions you make to a traditional IRA are taxed upon withdrawal (generally, after age 59½). Roth IRA funds are only taxable at the time of contribution. Thereafter, Roth interest and capital gains are distributed TAX-FREE.

One popular rationale for a traditional IRA is that retired people may be in a lower tax bracket and would therefore pay less tax on withdrawals of IRA funds than they would pay on Roth contribution taxes going in. Because of pension income, Social Security payments, and/or investment income, some Americans will find themselves in an equal or higher bracket after they leave their jobs. Also, present income tax rates are at an historical low — only the 1930s saw a lower individual tax rate than we’re experiencing today.

ROTH VS. TRADITIONAL IRA: FEATURES AND DISTINCTIONS

Traditional IRA account holders must take Required Minimum Distributions (RMDs) each year, beginning at age 70½. Roth IRA owners are not subject to RMDs (Roth beneficiaries are required to take RMDs). You can continue making contributions to a Roth IRA after age 70½ if you have taxable compensation and fall within the MAGI limits. Traditional IRA contributions are tax deductible and grow tax-deferred. Roth Contributions are not deductible but the earnings grow tax-free.