Articles - Archived Expert Advice

IRAs: Traditional vs. Roth

I was thinking about opening an Individual Retirement Account (IRA). What's the difference between a Traditional and Roth IRA?

The option you choose depends upon your income and personal financial goals. If you want tax-deferred earnings and the possibility of yearly tax deductions, consider a Traditional IRA. Contributions to the Traditional IRA may be tax deductible and can continue until age 70½.

Distributions from a Traditional IRA may begin at age 59½ with no tax penalty; however, it is mandatory that distributions begin at age 70½. Since earnings grow tax deferred, you may be subject to federal and state income taxes at the time of withdrawal. The major advantages are that earnings grow tax deferred, and some of your contributions may be tax deductible.

If tax-deferred earnings are not a priority, you may want to consider a Roth IRA. Contributions are made on an after-tax basis and are not tax deductible. Withdrawals can be made without being subject to income tax. There are no mandatory withdrawals for this account, so contributions after age 70½ are allowed, as long as you have earned income. The tax-free funds can also be left for beneficiaries.

Have additional questions or need assistance? Call an LGFCU financial counselor free of charge at 877.367.5428.