Ask an Expert: Roth vs. Traditional IRA
Published: 09/08/2021
Are you prepared for retirement? This is a question for individuals of all ages; it is never too early or too late to begin investing in your later days. To learn more about IRAs and how they can help you save for the golden years, we sat down with Mary, Member Experience Training Specialist at Fairmont FCU.
Q: What does IRA stand for?
A: Individual Retirement Account
Q: What is a Traditional IRA?
A: A Traditional IRA is a way to save for retirement that offers tax benefits right now with the potential for tax-deductible contributions and the possibility of reduced taxes upon retirement through tax-deferred earnings.
Q: What is a Roth IRA?
A: A Roth IRA is a way to save for retirement that offers long-term tax benefits with tax-free withdrawals on contributions and, potentially, on earnings, but contributions are not tax-deductible.
Q: How do I begin Investing in my IRA?
A: The first step is to decide which kind of IRA best fits your financial needs and whether you are eligible to contribute. This may require asking an accountant or your tax preparer. You can also visit irs.gov for more information. Once you decide on Traditional or Roth, simply open that type of account (be sure to ask about any minimums to open) and start saving money for retirement.
Q: What type of IRA investments does Fairmont FCU offer?
A: For Traditional and Roth IRAs, we offer IRA Certificate Accounts and IRA Club Accounts.
Q: Can I still contribute to a Traditional or Roth IRA if I participate in an employer-sponsored retirement plan?
A: Yes, participating in an employer-sponsored plan does not affect your ability to contribute to another IRA as long as contribution eligibility requirements are met, and contribution limits are not exceeded, but it could affect your ability to deduct Traditional IRA contributions on your taxes.
Q: Does the amount of income I earn each year matter when contributing to my IRA?
A: For Traditional IRAs, there are no income limits to contribute, but the amount you can deduct on your taxes may be limited by your income. Contributions can be made as long as you receive eligible compensation (taxable income typically from a W-2) in the year of the contribution. However, Roth IRA contributions are subject to income limitations (see irs.gov for limits). Keep in mind, all IRAs are subject to annual contribution limits, which can also be found on the IRS website.
Q: Will I be penalized by the IRS for withdrawing from my IRA early?
A: Potentially, yes, unless you are over 59 ½ years old or have a qualified reason.
August 2021 Blog
Q: When am I required to start taking money out of my IRA?
A: As of 2020, beginning at age 72, the IRS requires individuals to take a minimum distribution from their Traditional IRA each year. Prior to 2020, the beginning age was 70 ½. Roth IRAs, however, have no such requirement, so the money can continue to grow.
Q: Any advice for someone who is starting out with an IRA?
A: Do some homework and ask questions. It is important to open the right kind of IRA to meet your individual needs. Experts also recommend to be more aggressive with your IRA investments while you are younger and begin to move toward more stable investments about 10 years prior to your planned retirement date.
