What is “Savoring” and How Can it Help You Build Wealth?
The type of retirement account you choose can significantly impact your future savings. An IRA is an individual retirement account that you can set up at a financial institution that helps you save and invest for retirement (it is not through your employer). It’s really important to understand the differences between a traditional IRA vs. a Roth IRA to choose the best one for you. We lay out some of the differences:
Traditional IRA: Anyone with an earned income and younger than 70 1/2 can contribute
Roth IRA: Those with an earned income under a certain amount (with no age limit) can contribute (see below)
Traditional IRA: Tax deduction is in the contribution year and will depend on your personal tax situation (e.g., income limits and participation in an employer retirement account)
Roth IRA: No tax deduction in the contribution year
Traditional IRA: Your contributions and earnings will be taxed as ordinary income when withdrawn
Roth IRA: Your contributions and earnings are tax free when withdrawn
Traditional IRA: Your contributions and earnings can be withdrawn penalty free beginning at age 59 1/2. Distributions must begin at age 70 1/2.
Roth IRA: Your contributions can be withdrawn at any time tax and penalty free. Your earnings can be withdrawn penalty and tax free if you are over 59 1/2 and have had the Roth IRA for at least five years. No withdrawals are required during your lifetime.