Although there are 11 types of IRAs, the two most common ones are the Roth IRA and the traditional IRA. The two have several key differences, but both options will help you to save for your retirement.
Traditional IRAs are tax deductible. The money is deposited into your IRA will not be taxed. However, if you choose to withdraw your funds before the age of 59 1/2, then the money in the IRA will be taxed as income tax, and you will have to pay a 10% penalty. The 10% penalty is certain for all withdrawals before the age of 59 1/2 unless the funds are used as payment for “qualified higher education expenses” or for another exemption that allows the early withdrawal penalty to be waived.
When depositing money into an IRA account, there is no limit. Most banks sell IRAs in a connection to a CD, or certificate of deposit. However, you are not limited to only what the banks offer. If you want to know more about IRAs, you can visit this gold ira rollover website.
Income taxes for Roth IRAs are much different than the taxes for traditional ones. Roth IRA contributions are not tax deductible. Roth IRAs are tax exempt rather than being tax deferred savings. Eventually you will have to pay income taxes on the savings in a traditional IRA. As long as your follow the rules, a Roth IRA will never make you pay taxes on your gains.
There are restrictions as far as who the Roth IRA is fully available to. A single filer must be making up to $95,000, and joint filing couples must be making up to $150,000. However, withdrawals for the Roth IRA are far less restrictive than withdrawals for a traditional IRA. First time homebuyers are able to take up to $10,000 from their Roth IRA without being subjected to any penalties or taxes, as long as the money has been in the Roth IRA for a minimum of five years. Education spending also offers some breaks, but an Education IRA is usually a better choice for those who wish to put aside savings for education. Although IRAs are not taxed, you will be taxed if you withdraw prior to the age of 59 1/2.
Each type of IRA offers their own benefits, so it’s important to do plenty of research prior to setting up an IRA in order to decide which one is right for you.