Roth IRA and Traditional IRA?

Question

Can someone tell me the difference between the 2? Also, if I have a 10k cd, when its time to roll it over would I be better off in a IRA, if so, which one? Also, whats a money market? What would this do for me?

Answer 1

A traditional IRA is used to get deferred taxes on any money you deposit. You are not taxed on anything you put into one as well as any money you make inside of one (stocks) until you take that money out later in life, most likely around 65. This is beneficial if you are in a very high tax bracket and want to save a lot on taxes. The amount you pay when you finally withdraw is decided by the tax bracket you are in at that age. Most elderly people, who are most likely retired when they withdraw, are in a much lower bracket, possibly around 15%, instead of at 35-45% at a younger age.

A Roth IRA is different. All money put inside one of these accounts are all after-tax monies. You pay taxes first and then whatever is left over goes into the account. The benefit of the Roth IRA is that you are never taxed again. This is very nice for people who plan on making a lot more money in stocks and bonds, etc., after they deposit the initial funds. So if you make a million dollars inside of your Roth IRA, then none of it ever gets taxed when you withdraw.

The best way to decide which is right for you is to weigh the benefits of deferring some taxes now or paying taxes but making a much higher amount in the future.

Hope this helps!

Answer 2

A traditional IRA is an individual retirement account that individuals can use to save for their retirement. The amount that can be invested tax free is specified by law and depends on the individual's income. When the money is withdrawn it is subject to income tax.

A Roth IRA is similar, except that the money is invested after taxes have been paid on it. There is a limit on the amount that can be invested per year, which depends on the individual's age ($4,000 if under 50 and $5,000 if over 50). The income and gains earned by the Roth IRA are tax free. The money can be withdrawn after five years, and after age 59 1/2 without penalty and without payment of any tax.

You could put part of the CD in an IRA, with a Roth IRA being preferable because the money has already been taxed.

You probably mean what is a money market fund. It is an investment fund that is invested in fixed income securities, that is instruments that can be converted to a specific amount of money, such as treasury bills and bonds, rather than stocks that can fluctuate in value. The money tends to be safe but the return is smaller than with more risky investments.

Answer 3

Here's the way it breaks down.

With a Roth, you pay taxes on the money now, and can take out the money and earnings tax free when retiring.

With a traditional IRA, you can get a tax deduction now, but have to pay normal income taxes on the money and earnings later.

A Roth also lets you take out your contributions, but not earnings, with no penalties, prior to retirement age. A Traditional IRA will penalize you 10% + normal income taxes. Ouch!

You can only put a total of $4k this year ($5k if over 50) in IRAs. So you can't roll over the $10k CD. The limits go up $1,000 in 2008.

My advice is that if you think you are going to retire comfortably, put money in a Roth, because taxes might be higher then. If you are trying to catch up and may not have enough for retirement, then take the tax cut now and put them into a Traditional IRA, as poorer folks don't pay much in taxes.

A money market fund is a find where you keep short term money and it invests usually in very secure short term investments, like high grade bonds due in less than 90 days. Could be gov't bonds too depending on the money market.

Answer 4

Roth IRA - Money you put in is after tax. Withdrawal is tax-free.
Traditional - Money you put in is before tax. You can take a tax deduction right away. You pay tax on all withdrawal.

Roth IRA is best for young people who are not in high tax bracket. Traditional IRA is good for people who are in high tax bracket or need the deduction. Normally, after you retire, your income is much less, and so paying some tax on the withdrawal of traditional IRA is not that painful. It is okay to have both types, in separate accounts.

Answer 5

it truly is an extremely close call between a regular IRA and a Roth IRA. that's the adaptation. the classic IRA helps deducting contributions out of your modern earned earnings, yet once you at last do away with the money from the classic IRA you are going to be able to desire to pay complete taxes on each and all the money. The Roth IRA on the different hand does not enable deduction of contributions from earned earnings yet there is on no account any tax on the quantity earned in the Roth IRA. So the adaptation is style of one between you pay me now or you pay me later. A 401k is very like the classic IRA different than that your are constrained among the recommendations of investment which you have. because of the fact of that decrease this is not so versatile. It does have the earnings of your being waiting to possibly make investments extra for retirement interior of a 401k. because of the fact that incomes from a regular IRA are taxed on the complete tax fee, it truly is a bonus to speculate in products which may be taxed on the complete tax fee besides--CDs, bonds, REITS, constrained Partnerships, or short term investments. because of the fact that earnings of a Roth IRA at the instant are not taxed in any respect, the comparable carry actual on the popular investment varieties. That way there is not any tax. Tax advantaged investments including folk who're subject to the decrease fee of long term capital effective factors, are ultimate invested in exterior of an IRA. yet whilst they're invested in interior of an IRA, it would nicely be a Roth IRA extremely than a regular. undergo in strategies that this assume you're allocating your investments among a different set of investment automobiles. there's a trick you could actually additionally use. whilst making an investment in a regular IRA, you could actually roll over a piece to a Roth IRA at any time and pay the tax due on the roll over. If one ought to discover oneself interior of an extremely low tax bracket quicker or later in ones existence, it truly is a bonus to do a roll of an quantity right into a Roth IRA that's no extra suitable than what might bump one into an more advantageous tax bracket. Assuming one would be amassing earnings for 20 to 30 to 40 years on the quantity invested, curiously to me that the earnings lies with the Roth IRA. there is the the flexibility to keep away from taxes on a great deal of money and who's familiar with what the tax fee must be 30 years from now?

Answer 6

Roth - pay taxes on money put in, all money earned at withdrawl is tax free
Traditional - no taxes on money put in, pay taxes on all money invested and earned on withdrawl
Which one depends on your situation, if you pay more taxes now than you will at retirement, then Traditional, if the other way, Roth. Roth is typical for people that are very young (18-40), where the interest/gains earned during their lifetime will create a greater income base than their salary.