2007-03-03 02:41:45 · 6 answers · asked by northernfriend13083 1 in Business & Finance ➔ Personal Finance
A Traditional IRA and Roth IRA are essentially the same, except for one thing -- what's taxable. The income that you contribute to a Traditional IRA is exempt from tax under certain circumstances. In a Roth IRA, your contributions are taxable, but your earnings are tax-free if withdrawn after the age of 59 1/2. For more on Traditional IRAs and Roth IRAs, see http://beginnersinvest.about.com/cs/iras/f/tradvsrothira.htm.
2007-03-03 02:48:48 · answer #1 · answered by Aaron F. 2 · 0⤊ 0⤋
What a great idea! There are many retirement calculators on the internet. Just search for retirement calculator or roth ira calculator, ira calculator. I tend to think the Roth IRA is best here, since I'm guessing you will contribute dollars and she won't deduct. At retirement, she'll pay no taxes on withdrawals. With a regular IRA, she can deduct but will pay taxes when she withdraws at retirement.
You can get more information by calling a direct mutual fund company like T Rowe Price or discount brokerage like Charles Schwab-they both have good customer service-and both offer no-load funds. With Schwab will have more choices for investments like CDs & stocks as well, TRP offers only mutual funds( which is a collection of stocks) but there are less decisons to make.
What a nice gift for your Grandaughter!
2007-03-03 03:07:52 · answer #2 · answered by Middleclassandnotquiet 6 · 0⤊ 0⤋
You can't. An IRA or Roth-IRA can only be funded by her own (or her husband's ) earnings as shown on her (their) tax return. Gift, interest, dividend money can't be used.
But there is a simple solution: Let us say she has a part time job that pays her $2,000 a year, all of which she uses to live on. You could give her another $2,000 for her to open an IRA. As far as the IRS is concerned, she is living on your gift and saving her earnings.
Don't even consider giving her a no-show job to get the money. You'll both need to pay social security and medicare (and other, such as state unemployment) taxes on the money and you'll need to file Schedule H with your tax return. Your state might even require you to pay into workers compensation fund.
If you are funding this, as above, select a Roth IRA. A regular IRA would require entries onto her tax return. While a regular IRA would reduce her current year's taxes (if she had any), it would increase them when she retires.
2007-03-03 04:05:03 · answer #3 · answered by Thinker 7 · 1⤊ 0⤋
Good going grandma !!! I wish more people would do this. I have been giving gifts like this for years and some simply turn their noses up at it.
A ROTH is done with money already paid tax on so your granddaughter will not have to pay tax on it when she retires. She will, however have to pay tax on the interest IT has made. This will save here possibly thousands of dollars at retirement.
A traditional is done with per-taxed money which then will be taxed when she withdraws it on the principal AND the interest she had made. As time goes by the tax rates will likely rise so she will be really socked with taxes come retirement.
I suggest the ROTH for the simply fact it will save HER money in the end. Which ever one you choose I congratulate you on making a wonderful decision regarding your granddaughter's retirement !!! **high five to grandma**
Heads UP people and take a lesson from this grandma here!!
: )
2007-03-03 03:27:04 · answer #4 · answered by Kitty 6 · 1⤊ 0⤋
Go for the Roth - you pay the fees upfront, so when she retires, all of that money will be hers.
2007-03-03 03:22:15 · answer #5 · answered by Mrs. Goddess 6 · 0⤊ 0⤋
Go for the Roth.
It could easily be worth 20x by the time she retires.
2007-03-03 04:33:35 · answer #6 · answered by Quixotic 3 · 0⤊ 0⤋