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The difference between Roth and traditional IRAs

Posted August 07, 2013 in Community Web Exclusives

An IRA (Individual Retirement Account) gives you the opportunity to save for retirement and receive special tax privileges. You and your spouse are eligible to contribute to an IRA even if you are enrolled in your employer’s workplace plan.

There are two main types of IRAs — Roth and traditional —each with its own rules and benefits.

Roth IRA contributions are made with after-tax income, so you will not owe taxes when you withdraw them under our current laws. Roth IRAs offer you the benefit of tax-exempt growth, meaning your accumulated earnings generated on the assets in your Roth IRA will not be taxed provided you meet certain conditions. Also, there is no minimum distributions at the age of 70 ½. Non-qualified distributions of earnings are taxed as ordinary income and prior to age 59 ½, a 10 percent federal penalty tax may apply to the taxable amount. Eligibility to participate depends on adjustable gross income amounts.

A traditional IRA is the most common type of IRA and can be opened by anyone who earns income through employment and is younger than age 70 ½. Contributions are tax-deductible, which reduce the amount of tax you have to pay but does not eliminate it. You are basically deferring your tax until you make withdrawals in the future. You are eligible to begin taking minimum distributions once you turn age 59 ½ and are required once you are 70 ½ years old. Early withdrawals from a traditional IRA are usually subject to income tax plus a penalty. Any withdrawals prior to age 59 1/2, a 10 percent federal tax penalty may apply to the taxable amount. Contributions may be deductible depending on income limits.

No matter which IRA you choose, Roth or traditional, you will have a wide range of investment choices to pick from. Investing in an IRA can help you move toward your retirement goals. For more information about investing in an IRA, contact a financial professional.

Andy Hejlik is an Investment Advisor Representative with and securities and investment advisory services offered through Transamerica Financial Advisors Inc. (TFA) Member FINRA/SIPC and Registered Investment Advisor. Non-securities products and services are not offered through TFA. TFA and KHI Financial Solutions are not affiliated.

Information supplied by Andy Hejlik, KHI Financial Solutions, 130 N. 25th St., 576-1800,

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