Expertise in IRAs & Roth IRAs 

Traditional IRA:

A Traditional IRA is a tax-deferred savings account set up through an investment institution. IRA investing options can include stocks, bonds, mutual funds, cash equivalents, real estate, and other investment instruments. One of the benefits of a Traditional IRA is the potential for tax-deductible contributions.

You can contribute directly to a Traditional IRA or you can transfer assets directly from another type of qualified plan, such as an SEP or a SIMPLE IRA. Rollovers can also be made from a qualified employer-sponsored plan, such as a 401(k) or 403(b), after you change jobs or retire.

Not everyone contributing to a Traditional IRA is eligible for a tax deduction. If you are an active participant in a qualified workplace retirement plan, such as a 401(k) or a simplified employee pension plan, your IRA deduction may be reduced or eliminated based on your income. Moreover, nondeductible contributions may necessitate some complicated paperwork when you make withdrawals from your account. If your contributions are not tax-deductible, you may be better served by another retirement plan, such as a Roth IRA. The retirement advisors at Craig James Financial Services can help you determine what retirement instruments are right for you.

The funds in a Traditional IRA accumulate tax-deferred, which means you do not have to pay taxes until you start receiving distributions. Withdrawals are taxed as ordinary income. If taken prior to age 59 1/2, withdrawals may also be subject to a 10% federal income tax penalty, but there are some exceptions to this early-withdrawal penalty.

You must begin taking annual required minimum distributions (RMDs) from a traditional IRA after you turn 73 or you will be subject to a 50% income tax penalty on the amount that should have been withdrawn. Of course, you can always withdraw more than the required minimum amount, or even withdraw the entire balance as a lump sum.

Roth IRA:

Roth IRAs differ from Traditional IRAs in that you cannot deduct contributions made to a Roth. However, qualified Roth IRA distributions in retirement are free of federal income tax and aren’t counted as gross income. This can be advantageous if you are in a high tax bracket in retirement or taxes go up in the meantime.

Another benefit of Roth IRAs is that you can contribute to a Roth after age 73 as long as you have earned income, and you don’t have to begin taking mandatory distributions due to age, as you do with a Traditional IRA.

Roth IRA withdrawals of contributions (not earnings) can be made at any time and for any reason; they are tax-free and not subject to the 10% federal income tax penalty for early withdrawals. To qualify for a tax-free and penalty-free withdrawal of earnings in retirement (after age 59 1/2), a Roth IRA must have been in place for at least five tax years. Although qualified Roth IRA distributions are free of federal income tax, they may be subject to state and/or local income taxes. Eligibility to contribute to a Roth IRA phases out for taxpayers with higher incomes.

If you’re looking for a retirement savings vehicle with some distinct tax advantages, the Roth IRA may be appropriate for you. Craig James Financial Services helps to offer independent financial planning solutions and personalized wealth management advice targeted to your retirement goals and financial circumstances. Let the investment advisors at Craig James Financial Services help you secure your retirement nest egg.