Retirement

[sc4s2cg]

What a way to have my first post in the College forum!

My dad and I are looking to open an IRA, retirement savings account, and were wondering which type do ya'll have? A Traditional IRA (heavy penalty when taking money out before due, but money put in is tax-deductible) or a Roth IRA (no penalty when taking money out before due, but money put in is not tax-deductible)?

And why do you have it?

G-d bless,
sc

 

[arunma]

I don't have any of that stuff. But seeing as how I get a steady paycheck now from grad school, I should probably pay attention to this thread.

 

[redheadskiangel]

don't have any of that stuff either... or money at the moment.

 

[BeautifulChange]

^ lol, same here. maybe in a few years.

 

[Airicon]

It all depends on your situation. For those who don't know, IRA stands for Individual Retirement Account, and it is offered in two forms, traditional IRA and Roth IRA. You can use your IRA to buy securities, etc. Which one to go with completely depends on your situation.

In a traditional IRA, your contributions are tax deductible. So if you make $60,000 in a year, and contribute $1,000, you are only taxed on $59,000 for that year. You can't begin withdrawing funds until you are 59.5 years old, and when you begin withdrawing funds, you start paying taxes on your earnings.

In a Roth IRA, your contributions are not tax deductible, so if you made $60,000 last year and you put $1,000 in your Roth IRA, you still are taxed on $60,000. However, all earnings and principal on your investment can be withdrawn from the account tax free once you reach 59.5 (if you withdraw before 59.5, you pay taxes on earnings). Roth IRAs are almost always better than a traditional IRA because you don't pay tax on earnings, which can save a lot. However, Roth IRAs are not available to everybody. They are only available to you if you and your spouse's combined income is $150,000 or less (or $95,000 if you aren't married).

Check out the Fools for more
http://www.fool.com/money/allaboutiras/allaboutiras03.htm

Hope this helps