Smith & Gesteland Quick Tip

Roth IRA or Traditional IRA

Determining whether it makes good financial sense to give up current tax deductions in your traditional IRA in exchange for tax-free income in the future is no easy task.

For the most part, it depends on whether your tax bracket when you retire is higher or lower than your current tax bracket. If it turns out to be higher, the Roth IRA would prove to be a better choice; if it's lower, the traditional IRA may win out.In choosing between the two, you should consider some of the other benefits of Roth IRAs .

Unlike a traditional IRA, persons older than 70½ can still make Roth IRA contributions as long the income earned is within the limitations. Also, there is no minimum distribution requirement with a Roth IRA, which means your assets can grow tax-free beyond the age of 70½.

If you're deciding between a Roth and traditional IRA, one of our CPAs can help you determine which makes sense for you.

 

How Much Can I Contribute to a Roth IRA Each Year?

You can make contributions of up to $3,000 a year or 100 percent of your earned income, whichever is less. If you and your spouse both have earned income, you can each establish separate Roth IRAs and contribute up to a total of $6,000 annually. In addition, if the taxpayer reaches the age of 50 before the end of the tax year, the individual is allowed a "catch up contribution" in the amount of $500. The maximum annual contribution that can be made to a Roth IRA is phased out for single taxpayers with adjusted gross income (AGI) between $95,000 amd $119,000 and for joint filers with AGI between $150,000 and $160,000.