Traditional IRA Vs. Roth IRA

Self Directed IRAs are great accounts to have for retirement. There are a few different options when deciding which type of IRA to place your money in. Two popular options are traditional IRAs and a Roth IRAs. Both have great benefits as far as taxes are concerned.

Both of these IRAs can be set up as a Self Directed IRA and allow you to invest the money you put into them. That way the money can be growing for a long period of time. However, there is a limit to the amount you can contribute to these accounts. You are only allowed a maximum of $5,000 yearly for those under the age of 50 and $6,000 yearly for anyone older. This still allows for a large amount of money to be saved up.

To withdraw money from a traditional IRA, there are a few rules you must follow to avoid penalty. Once you reach the age of 59 you are free to withdraw your money without penalty. If you do it before this age you will pay a 10% fee on the amount you take out. If you reach the age of 70 and have yet to withdraw money, you will be required to do so at this point.

On the other hand, there is no time when you are forced to withdraw your money. You can leave your money in or take it out without penalty. You can also keep adding funds to your account for as long as you want.

The problem with Roth IRAs is that not everyone can open one. You must be with the income bracket making less than $95,000 as a single or $150,000 as a married couple. This makes it so the upper income class must resort to a traditional IRA.

Another benefit of a Roth IRA is the no penalty withdraws. This allows you to take out any principle money that you have previously deposited. This means if you take money out that has been earned through investments you will be charged a fee. Withdraws from the account are never required as they are with a traditional IRA. You can leave your money in or take it out whenever you want. This is also a big reason this type of Self Directed IRA is so popular.

There have been some changes made to Self Directed IRAs beginning in the year 2010. One change dealing with Roth IRAs is allowing anyone to convert a traditional IRA into a Roth IRA. There is no income limit as there was before. You will need to pay taxes on all the funds being transferred to the Roth IRA and once it’s in the Roth IRA there are income limits for someone to make a contribution.

Both of these Self Directed IRAs are great places to put your money in order to get tax relief. However, there is a maximum amount you are allowed to deposit each year. Both accounts have the same maximum of $5,000 if you are younger than 50 and $6,000 if you are 50 or older. Even with this limit placed on the accounts, you can save up a lot of money for retirement while getting a break on your taxes at the same time.

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