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Know the Difference: Traditional and Roth IRAs

Every now and then it is important to take some time to inventory your retirement planning. If you own a Traditional IRA, for instance, you probably know your contributions may be tax deductible. Did you know that if you withdraw from that Traditional IRA early you must pay a 10% penalty in addition to income tax?

A Roth IRA is not tax deductible. However, if you make withdrawals before your Roth IRA account is open for five years you could be assessed a tax penalty.


Traditional IRA:

  • Tax-deferred earnings
  • Contributions may be tax-deductible

Roth IRA:

  • Earnings may be tax free
  • Contributions are not tax-deductible

IRAs are, of course, just one way to plan for your future. If you are married and your spouse is also employed, take some time together to decide what you want your retirement years to look like.  

Don’t just rely on your 401(k) as the only way to save for your retirement, and if you have children or plan to have children you have additional saving concerns that may be relevant to consider at this time. If you want an assessment about your planning approach, talking to a financial advisor is always a good step to consider.  

The above is not intended to be tax advice, was not written by a tax professional and is informational only. Please consult a tax advisor for your specific situation.

Posted: 4/26/2011 with 0 comments

Categories: Investments, Planning, Retirement

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