An IRA (Individual Retirement Account) is an investment account that receives favorable tax treatment and is designed to help individuals save for retirement. While there are many different types of IRAs, Traditional and Roth IRAs are the two most common types.
What’s the difference between Traditional and Roth IRAs?
Contributions to Traditional IRAs are tax-deductible when made and withdrawals are taxed as income in retirement. While contributions to Roth IRAs don’t reduce your taxes now, they can provide a source of tax-free income in retirement. Regardless of the type of IRA you have, the account balance will grow tax-free while in the account, helping you accumulate more over time than you would in a taxable investment.
Is it true that Roth IRAs are better for younger investors and that older investors should opt for a Traditional IRA?
There are a lot of exceptions to that “rule of thumb”. For example, Roth IRAs avoid required minimum distributions at age 70 ½ that could force you to pay taxes on money you don’t even need. Roth IRAs also offer certain estate-planning benefits.
What’s the maximum that someone can contribute to an IRA?
The maximum contribution for 2009 and 2010 is $5,000, or $6,000 if you’re 50 or older. But the actual amount you can contribute will “phase-out” at certain income levels, and Traditional IRA contributions aren’t deductible in certain situations, so get advice if you don’t understand the specifics.
Is it too late to make a contribution for 2009?
You can make a 2009 contribution up until April 15, 2010 and can make a 2010 contribution from now until April 15, 2011.
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