Now that you know the difference between Traditional and Roth IRAs, you may wonder which is right for you - or whether they're both right for you. The answer is as individual as you are, although these questions may help guide you as you determine which IRA better meets your objectives.
1. Do you want the potential of tax-free earnings (after owning the account for 5 years and upon turning age 59 1/2)?
2. Do you want to continue contributing after age 70 1/2 if you have earned income?
3. Do you want to leave all of your IRA money invested after age 70 1/2?
4. Do you think your tax rate is lower now than it will be when you retire?
5. Do you want to be able to pass on tax-free earnings to your beneficiaries?
Note: If you answered "yes" to most of the above questions, you should consider contributing to a Roth IRA - assuming that your Modified Adjusted Gross Income (MAGI) is at or below the eligibility limits.
6. Do you qualify to deduct all or part of yoru annual IRA contributions?
7. Do you think your tax rate will be lower when reitre than it is now?
8. Do you want a fully deductible IRA for a spouse who si not participating in an employer plan, while you are?
(if joint adjusted gross income is not more than $150,000)
9. Do you want to be able to contribute to an IRA no matter how high your income?
Note: If you answered "yes" to most of questions 6 through 9, then you may want to consider a Traditional IRA instead of a Roth IRA.
The Stretch IRA Strategy: You have worked hard your entire life to accumulate your assets, fulfill your retirement dreams and provide protection for your loved ones. As you move through your financial lifecycle, it is important to examine your current situation and plan accordingly for future events that could impact your retirement strategy, your IRA assets or your beneficiaries. The Stretch IRA strategy is a planning strategy that can help preserve your IRA and other tax-qualified assets for your beneficiaries. The Stretch IRA strategy focuses on passing IRA assets to your loved ones – when you don’t need these assets currently to meet your retirement income needs – by accessing only the minimum amounts required under the tax law. (See IRA & Retirement Plan Uniform Withdrawal Table)
