It is never too early to start thinking about retirement, but when it comes to Individual Retirement Accounts (IRA), which is tailored to your needs? In this article you will find out everything about Roth and traditional IRAs.
With a Roth IRA, you will get after-tax dollars, which means that you are paying taxes now and when you do withdrawals, they are tax-free. Also, you are not forced to make any withdrawal at any age. You must have the account for at least 5 years to avoid paying any taxes. On the other hand, you don’t have any tax deductions for your contributions.
In a traditional IRA, you get pre-tax dollars, meaning that you will pay your taxes when you withdraw money. This is more like a personalized pension. You also have to start doing the Required Minimum Distributions by the age of 72, whether you need the money or not. You have a more restricted access to the money, but in return, you get tax deductions on your contributions.
You should take a deep look into both options, but in general, if you expect to be in a higher tax bracket when you retire, you might be more likely to fit into a Roth IRA, since you may lose some tax incentives as you reach your retirement.