Roth IRAs Offer Some Advantages over Traditional IRAs


A major advantage of a traditional IRA over a Roth IRA is that the contributions to a traditional IRA are often deductible while contributions to a Roth IRA are never deductible. On the other hand, the distributions from a Roth IRA are non-taxable if held in the account for five years and not distributed prematurely. This means that all of the earnings that accumulate in the account will also be non-taxable.

Premature distributions from both Roth IRAs and Traditional IRAs are taxable and subject to a 10% penalty. Distributions are generally treated as premature if made before you reach age 59 1/2. However, such distributions from a Roth IRA offer a certain advantage. They are treated, in most cases, as coming first from contributions, and therefore are neither taxable nor subject to a penalty.

In addition, you don't have to take minimum distributions at age 70 1/2 from a Roth IRA. You can let them accumulate, continuing their tax-free growth. Traditional IRAs, on the other hand, do require that distributions begin when you reach age 70 1/2.

Your particular situation and needs will determine which IRA works best for you.

You should consult a tax professional when applying any of these tax planning suggestions.