January 19, 2024
How do I choose between a Traditional and a Roth IRA?
Consider the tax benefit that may suit you best.
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Anyone with earned income may contribute to a Traditional IRA; deductibility may be limited or unavailable for certain individuals covered by an employer-sponsored retirement plan.
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Roth contributions are not tax-deductible and the individual must meet certain income eligibility requirements.
Click here for more information on deductibility and eligibility requirements.
Consider your tax bracket at retirement or when you intend to begin withdrawing from the plan.
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If you expect to be in a lower tax bracket at retirement, you may prefer a Traditional IRA as funds are taxed in the year they are withdrawn. This is most often the right choice for those in their prime earning years.
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If you expect to be in a higher tax bracket at retirement, you may prefer a Roth IRA as funds are withdrawn tax free for qualified distributions. This is usually the recommended place to start for students, or those early in their career.
How much may I contribute to a Traditional or a Roth IRA plan?
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For tax year 2023, the contribution limit is the lesser of 100% of your earned income or:
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$6,500.00 for those under age 50 or
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$7,500.00 for those age 50 and over
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For tax years 2024, the contribution limit is the lesser of 100% of your earned income or:
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$7,000.00 for those under age 50 or
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$8,000.00 for those age 50 and over
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Consider setting up an automatic account transfer or contributions directly through your payroll to your Traditional or Roth IRA. Prior year contributions may be made up until the tax filing date, generally April 15 (not including extensions). For example, you may make 2023 IRA contributions until April 15, 2024.
The Takeaway
Choosing the right retirement plan may take some thoughtful consideration of the tax benefits that best suit you. Be sure to talk with your tax or financial advisor. It is important that you are contributing at least a portion of your income to retirement. Start by just getting in the habit and setting aside an amount you know you won't miss. Your future self will thank you!
Resources
Want to find out more? Check out our brochures
These facts and opinions are provided by the Cape Cod 5 Retirement Services. The information presented has been compiled from sources believed to be reliable and accurate, but we do not warrant its accuracy or completeness and will not be liable for any loss or damage caused by reliance thereon.
