Roth IRA Versus a Traditional IRA
Posted by Entrust Sacramento on Mon, Sep 14, 2009
With the federal government spending more money than it takes in as a result of corporate bailouts, stimulus spending, and eventually the passage of healthcare reform, it seems inevitable that income taxes will be raised. Now is the time to start thinking about sheltering your income from future taxation by establishing a self-directed Roth IRA.
Why a Roth IRA versus a Traditional IRA?
With a Roth IRA, your withdrawals are not subject to tax. No one knows how high the income tax rate will rise over the next 10-20 years. But if you have a Roth IRA, you don't have to worry about what the tax rate will be because your investment returns won't be taxed. In addition, there are no requirements regarding distributions. You can let the money sit as long as you want or can afford.
On the other hand, with a Traditional IRA, you defer your tax liability to when you take distributions-which are required. Your withdrawals are taxed at your rate at the time of the distribution. So if you anticipate being at your current tax rate or higher, you have to take a tax bill into account.
The benefits of the Roth IRA growing tax free and without required distributions are clear. If you are eligible to contribute to a Roth IRA-eligibility is based on your current income-then consider establishing a self-directed Roth IRA. Self-direction allows you to broaden your investment options. Here are some of the ways that you can diversify your account and potentially improve your rate of return:
According to various economists, retirement accounts have, on average, lost approximately 20% of their value within the past 18 months. If you have a Traditional IRA that has lost value, now might be a good time for you to roll over the funds into a self-directed Roth IRA. Check with your tax advisor whether converting your IRA fits into your financial goals.
If you would like to learn more about the investment options of a self-directed IRA-either Roth or Traditional-contact Lamarr Baxter at (916) 509-7271.
The Entrust Group and its Franchisees do not provide investment advice or endorse any products.
All information and materials are for educational purposes only. All parties are encouraged to consult with their attorneys, accountants, and financial advisors before entering into any type of investment.