Planning for retirement is no easy task. As an employee in the United States, taking advantage of Individual Retirement Account or IRA is a smart addition to your retirement strategy.
However, how do you know which IRA is right for you? Should you be taking advantage of a Traditional IRA or a Roth IRA? Let’s look at some of the main differences between the Traditional and Roth IRA below.
The traditional IRA allows for tax-deferred growth. Withdrawals are usually penalty free but are limited to certain items including college expenses, purchase of our first home (this does have a lifetime cap of $10,000) some major medical expenses and can even include some unemployment expenses that are long term.
The Roth IRA, on the other hand, offers tax-free growth. However, withdrawals are only tax-free providing that you are over the age of 59 ½ and your Roth IRA has met the 5-year aging requirement. So long as these 2 requirements have been met then withdrawals from the Roth IRA are free from federal taxes.