IRA
Introduction
IRA abbreviation for Individual Retirement Account; these are accounts in financial institutions which allow people to save up for their retirement on a free tax-deferred basis. There are a few different types of IRA which involve traditional, rollover and finally the Roth. But in this paper, we major on the most important ones which are traditional and Roth. Under traditional IRA one makes contributions to the amount of money that one may be able to deduct (Copeland, 371). When we move to Roth IRA one makes contributions in the account with already tax paid hence the money grows tax-free. Both the different types of IRA have been discussed below in this paper.
There are a number of differences between the two types the first being on the tax benefits. Under Roth IRA, the account has a tax-free growth and also tax-free withdrawals. On the other hand, the account receives a tax differed growth and contributions may be tax-deductible. Under age category, there is another difference between the two classes (Copeland, 386). Under Roth IRA there are no age restrictions with the employment compensations but on the other hand one must be under the age of 70 with employment compensations. Another difference is that when it comes to Roth IRA the income limits apply when it comes to making the contributions but, on the other hand, Traditional IRA no income limits are applied. Another thing to observe is the minimum required distribution no minimum required distribution during the lifetime of the original owner of this account which applies to the Roth IRA but on the other hand an age limit of 70and-half applies (Poterba, 29).
The similarity between the two is the catch-up contribution where persons aged over 50 years can make additional contributions of $1000 every year. From the comparison of the two types of IRA, I would prefer the Roth Ira over the Traditional IRA the main reason being in relation to taxation factor (Rhee, 36). Also, the age limitation is another thing to compare and Roth IRA offers the best plan.
References
Copeland, Craig. "Individual Retirement Account, Contributions, and Rollovers, 2010: The EBRI IRA Database™." EBRI Issue Brief 371 (2012).
Copeland, Craig. "IRA Balances, Contributions, and Rollovers, 2011: The EBRI IRA ." EBRI Issue Brief 386 (2013).
Poterba, James M. "Retirement security in an aging population." The American Economic Review 104.5 (2014): 1-30.
Rhee, Nari. "The Retirement Savings Crisis." Washington DC: National Institute on Retirement Security (2013).
