IRA: Traditional vs. Roth

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Wheelhouse Individual Retirement Accounts (IRAs)* serve as tax-advantage investments that earn significantly higher dividends than a traditional checking or savings account. The rates and returns are more stable and less risky than other forms of investments, so you can spend more time enjoying life and less time worrying about the future.

Wheelhouse offers two types of IRAs: Traditional and Roth. It might seem difficult to navigate their differences, so we’re here to help break it down.

With a Traditional IRA, you pay taxes later. Contributions to your Traditional IRA are tax-deductible, meaning you do not pay income taxes on the deposits going in. Thus, your investments grow tax-deferred. When you’re ready to withdraw during retirement, you will pay federal income taxes on your contributions and earnings.

With a Roth IRA, you pay taxes now. The contributions you make to your Roth IRA are after-tax, meaning you pay income taxes on the deposits going in. Because of this, the investments grow tax-free. When you withdraw your contributions and earnings during retirement, you will pay no federal income taxes on your withdrawals.

Which is right for you?
Choosing between a Traditional and Roth IRA is as simple as asking yourself, “Do I want a tax break now or a tax break later?”

In general, if you believe you are at a lower tax rate today than you will be when you withdraw your funds, a Roth IRA might be better suited for you (AARP). Traditional IRAs are usually the right choice for high-income earners who are currently in high tax brackets, whereas a Roth IRA might be ideal for average earners who will likely stay in the same or move up in income brackets as their lives progress.

There are additional differences to account for as well, including when funds can be withdrawn without penalties. Generally, Roth IRAs have more flexible withdrawal rules. As always, consult with your tax advisor to determine which IRA option is best for you.

To get started or to learn more, visit our website or speak with a Wheelhouse professional at 619-297-4835

*Wheelhouse IRA deposits are federally insured by the NCUA. Please consult your tax advisor regarding any IRA account. Other terms and conditions may apply. Membership is required.

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