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The Differences Between Traditional IRAs And Roth IRAs

By Jeffrey Jackson

Self Directed IRAs are great accounts to have for retirement. There are a few different options when deciding which type of IRA to place your money in. Two popular options are traditional IRAs and a Roth IRAs. Both have great benefits as far as taxes are concerned.

A Roth IRA seems to be the most popular option of the two for a few different reasons. One reason is that your money is always tax free even when you take it out of the account. This really helps with any investments made. Without having to pay tax these investments can grow much quicker.

To withdraw money from a traditional IRA, there are a few rules you must follow to avoid penalty. Once you reach the age of 59 you are free to withdraw your money without penalty. If you do it before this age you will pay a 10% fee on the amount you take out. If you reach the age of 70 and have yet to withdraw money, you will be required to do so at this point.

Both traditional and Roth IRAs provide a great opportunity for investments. You are allowed to invest the money that you have in the account and any money made will go right back into it. For traditional IRAs this allows your profits to be tax deferred until a later date. For a Roth IRA, this money is then tax free forever.

While the Roth IRA may seem more beneficial that the traditional IRA, there are limits to who can have one. If you are filing alone you can’t make over $95,000 a year and if you are filing jointly you can’t make over $150,000. This limit was placed to keep those in the upper income bracket from enjoying the benefits.

A traditional IRA has its benefits as well. It too has a major tax relief however, it comes in the form of a tax break. If you fall within the regulations, you will receive a tax break on the money you place in your IRA. Unfortunately with a traditional IRA, you cannot withdraw funds without a %10 penalty before the age of 59 . You are also required to withdraw funds at the age of 70 . When you do make withdraws whenever they may be, you must pay taxes on them.

The downside to a traditional IRA is the strict nature for withdraws. You must pay a fee or 10% on any money taken out before the age of 59 . You also are required to start these withdraws by the age of 70 . Once you do take this money out, you are required to pay taxes on it as if it were normal income.

Both of these Self Directed IRAs are great places to put your money in order to get tax relief. However, there is a maximum amount you are allowed to deposit each year. Both accounts have the same maximum of $5,000 if you are younger than 50 and $6,000 if you are 50 or older. Even with this limit placed on the accounts, you can save up a lot of money for retirement while getting a break on your taxes at the same time.

NAFEP (The National Association of Financial and Estate Planning) is a leading provider of self directed IRA and self directed 401k products, administrative and custodial services.

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Article Citation
MLA Style Citation:
Jackson, Jeffrey "The Differences Between Traditional IRAs And Roth IRAs." The Differences Between Traditional IRAs And Roth IRAs. 1 Jul. 2010. 3 Aug 2014 <>.

APA Style Citation:
Jackson, J (2010, July 1). The Differences Between Traditional IRAs And Roth IRAs. Retrieved August 3, 2014, from

Chicago Style Citation:
Jackson, Jeffrey "The Differences Between Traditional IRAs And Roth IRAs"

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