{"id":111,"date":"2016-04-13T11:03:05","date_gmt":"2016-04-13T18:03:05","guid":{"rendered":"http:\/\/thekyo.me\/?p=111"},"modified":"2016-04-13T11:03:05","modified_gmt":"2016-04-13T18:03:05","slug":"iras-roth-and-traditional-which-do-i-choose","status":"publish","type":"post","link":"https:\/\/thekyo.me\/test\/2016\/04\/13\/iras-roth-and-traditional-which-do-i-choose\/","title":{"rendered":"IRAs Roth and Traditional – Which do I choose?"},"content":{"rendered":"

First off, CONGRATULATIONS! \u00a0If you’re asking this question you’re already on your first step to that “Rich Life”. \u00a0What are IRAs? \u00a0They’re essentially vehicles for retirement (Individual Retirement Account – IRA). \u00a0As you’ve noticed there are two kinds: Traditional<\/strong> and Roth<\/strong>.<\/p>\n

As the names suggest the Traditional came first and the Roth I believe is more a function of my generation, but now they’re very prevalent. \u00a0Well what’s the difference? \u00a0If you assume normal usage of these accounts it boils down to\u00a0one thing…when you get taxed.<\/p>\n

Traditional<\/strong> – Use Pre-Tax income. \u00a0Get taxed on anything that is withdrawn after you retire.
\nSkip taxes now. \u00a0Get taxed on everything later.<\/strong><\/p>\n

Roth<\/strong> – Use After-Tax income. \u00a0Anything you withdraw after you retire is tax free.
\nGet taxed now. \u00a0Pay no taxes\u00a0on everything later.<\/strong><\/p><\/blockquote>\n

Here is some math\u00a0with non-real life numbers for additional visualization.<\/p>\n

Traditional<\/strong> –
\nToday:<\/strong> Income: 60k. \u00a0Invest 10k into Traditional. \u00a0Get taxed on 50k. 20% Tax Rate (10k). \u00a040k Income.
\nRetirement:<\/strong>\u00a010k becomes 100k. \u00a0Your tax bracket at retirement is 10%. \u00a0You are taxed 10k and keep 90k.<\/p>\n

Roth<\/strong> –
\nToday:<\/strong> Income: 60k. \u00a0Invest 10k into Roth. \u00a0Get taxed on 60k. 20% Tax Rate (12k). \u00a038k Income (60k – 12k taxes – 10k Roth)
\nRetirement:<\/strong>\u00a010k becomes 100k. \u00a0Your tax bracket at retirement is 10%…it doesn’t matter. \u00a0You already paid taxes so you keep 100k.<\/p><\/blockquote>\n

The numbers aren’t realistic, but you get the idea. \u00a0I really like Roth IRAs if you’re under 35. \u00a0If you believe in the power of compounding<\/a> and you have time, Roth is probably for you. \u00a0It’s because your earnings\/growth on your investment is all tax free. \u00a0The longer you let your money grow the more the earnings you get so that’s why I suggest people start this young. \u00a0It’s the 2nd thing I would consider for retirement\u00a0(The first being a 401k match from work, if they offer it. \u00a0401ks also nowadays come in the Traditional and Roth flavors. \u00a0Above rules apply as well). \u00a0IRAs tend to also have much lower limits than 401ks ($5500 in 2016. \u00a0Rules different if you’re over 50).<\/p>\n

This may or may not apply to you, but another reason why I say do it soon is because Roth IRAs have income limits and people generally make less early (the limits change yearly\u00a0and are fairly high). \u00a0For 2016 if your income falls is above\u00a0$183,000<\/strong>\u00a0you can\u00a0put less as you make more (at $188k you can only put in $2750) until…$193,000<\/b> you can’t\u00a0contribute. \u00a0If you contribute more than you were supposed to you have to take it out and possibly pay some penalties. \u00a0It gets a bit messy so be aware if you’re close to this threshold.<\/p>\n

You can technically take money out before retirement, but you’ll pay taxes (only applies to Traditional since you paid taxes on the Roth already) AND an additional 10% penalty (Applies to both). \u00a0Just don’t do it.<\/p>\n

There’s a lot more, but this will hopefully get you started in understanding IRAs and which is best for you.<\/p>\n

Wow you read to the end. \u00a0Hit me up on Twitter<\/a> (or upper right icon) if you’re interested in something more specific or just want to chat. \u00a0I’m trying to be better about trying it out.<\/p>\n","protected":false},"excerpt":{"rendered":"

First off, CONGRATULATIONS! \u00a0If you’re asking this question you’re already on your first step to that “Rich Life”. \u00a0What are IRAs? \u00a0They’re essentially vehicles for retirement (Individual Retirement Account – IRA). \u00a0As you’ve noticed there are two kinds: Traditional and Roth. As the names suggest the Traditional came first and the Roth I believe is […]<\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"nf_dc_page":"","om_disable_all_campaigns":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[4,8],"tags":[53,73,75,94],"class_list":["post-111","post","type-post","status-publish","format-standard","hentry","category-finances","category-retirement","tag-ira","tag-retirement","tag-roth","tag-traditional"],"yoast_head":"\nIRAs Roth and Traditional - Which do I choose? - My Dadlife<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/thekyo.me\/test\/2016\/04\/13\/iras-roth-and-traditional-which-do-i-choose\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"IRAs Roth and Traditional - Which do I choose? - My Dadlife\" \/>\n<meta property=\"og:description\" content=\"First off, CONGRATULATIONS! \u00a0If you’re asking this question you’re already on your first step to that “Rich Life”. \u00a0What are IRAs? \u00a0They’re essentially vehicles for retirement (Individual Retirement Account – IRA). \u00a0As you’ve noticed there are two kinds: Traditional and Roth. 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