What You Will Discover: IRAs can be broken down into 2 categories.
Skill Level: Easy
The main difference is WHEN you pay taxes on your IRA.
An IRA (Individual Retirement Arrangement – NO! It’s NOT Individual Retirement Account, fancy that!) is a thingee you put either pre-tax money or post-tax money into.
What kind of thingee? Well, think of it like a cookie jar. Or a laundry basket. Or a tool bucket. Or anything that allows you to carry “stuff”.
You put types of investments (salary, stocks, mutual funds, etc.) into your IRA and over the years, it grows grows grows.
Got that?
Alrighty then!
There are 2 different types of IRAs:
IRA:
A garden variety IRA is where you can invest NOT YET TAXED money.
So you will pay taxes on that and the earnings when you start withdrawing at age 70.5.
ROTH IRA:
A ROTH IRA is where you can invest ALREADY-TAXED money. And unlike a traditional IRA, you don’t have to withdraw at age 70.5.
There are more differences, but that’s the main one.
Sweet!
So what should you get? Probably… both to diversity your retirement income.
Here are something you should consider when debating… IRA? Roth IRA?
- What tax bracket will you be in at age 70.5? The higher you are, the more taxes you’ll probably have to pay.
- ROTH IRAs are more flexible if you have to withdraw early.
- Regular IRAs allow you to make a tax deduction. ROTH IRAs don’t.
What’s you’ve just learned:
You’ve just learned about the 2 main types of IRAs – Your typical IRA and a ROTH IRA
Your Next Steps:
Your next steps are to decide…. how do you want to proceed? Your investing situation is your own…. don’t be swayed by what others say or do – do your due diligence to find out what works best… for you.
Take control,
MB
GRAB IT NOW