There are differences between the IRA and Roth IRA, and the choice of the IRA depends on the age, current income and distribution goals of the individual planning to invest as this can help to enhance the total financial picture and build wealth for retirement. Every one plans for the retirement, to get a safe and secure future proper planning and investing is required and to do so firstly the individuals needs must be accessed and accordingly the retirement plan must be chosen. The individual planning to invest in IRA need to understand both the Ira and Roth IRA in detail here are a brief features of both the accounts.
IRA’s first came into being in 1974, with the enactment of the Employee Retirement Income Security or ERISA and when eligible contributions are done to this account the assets may grow tax-deferred, and distributions taken after age 59½ generally are taxed as ordinary income. The contributions may be tax-deductible, depending tax-filing status, and modified adjusted gross income and status to participate in the retirement plans. Minimum distributions (RMDs) from traditional IRAs may be taken by April 1 of the year following the year reaching the distribution qualifying age i.e. 70 and a half.
Roth IRA was established in the year 1998, by Senator William Roth of Delaware. Annual contributions to Roth IRAs are not tax-deductible provided the owner is eligible to contribute. The assets grow free and the owner is not required to pay income tax on withdrawals, provided the account is open for at least five years and the owner is 59 and a half years of age or older. To be able to contribute the income limits must be checked and if the income falls under the limits set the individuals can contribute based on the age. The contributions are limits are same for IRA and Roth IRA and they are for individuals under age 50 years $5,000 and for individuals age 50 years and older includes catch-up contribution of $1,000 and the total amount comes to $6,000
Some other features that the IRA and Roth IRA share are that both the plans build wealth for retirement of the owner and the contribution limits for both types of IRAs may increase due to cost-of-living adjustments in future years. The investments for both the plans can be chosen from a wide range of investments, including stocks, bonds and mutual funds. Both the plans also charge the same penalties for early-withdrawal that is applicable on making the withdrawals before the age 59 and a half and withdrawals done earlier will result in 10% early-withdrawal penalty. Exceptions are allowed in a Roth IRA that include withdrawals for a first-time home purchase, qualified higher-education expenses, the account owner’s death or disability, IRS levy, SEPPs and certain medical expenses.