Friday, August 2, 2013

Roth vs. Traditional IRA

I recently began a new position at Penn State and as a result attended a benefits orientation.  A financial consultant was talking about our retirement options and I learned something that I did not know before:  you can have both a Roth and a Traditional IRA.

Vangard offers a nice comparison between the two types of funds.  It turns out that both have their pros and cons.  If one strictly dominated the other (was better in every imaginable way), then the other would probably not exist.

If you put money in to both of them, then you can take advantage of tax savings today (traditional) and tax savings in the future (Roth).  If you plan on working into old age, then you can continue contributing to your Roth after age 70.5 but you'll have to begin taking money from the Traditional at that time.  Currently, both types of IRA have an annual contribution limit of $5,500.  That means that you should have both types of accounts if you have a great job and can afford saving more than $5,500 for retirement in a given year.

There are more differences between the two, but having both will allow you to take advantages of the upside of both of them.  I guess that means I need to get around to opening a Roth IRA in the near future.
Post a Comment