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Choosing Between a Traditional IRA or a Roth IRA

Choosing Between a Traditional IRA or a Roth IRA

Which is the better choice, a Traditional IRA or a Roth IRA?

When looking to save for retirement, you may wonder which type of individual retirement account (IRA)—Traditional or Roth—is the better choice. The answer will depend on your age, income and tax bracket. Then compare the rules and tax benefits to help choose the account that is right for you.

As long as you have earned income, you can contribute to either. You must be under age 70 ½ to contribute to a Traditional IRA, but you can contribute to a Roth IRA at any age.

The amount of income you earn dictates how much you can contribute to a Roth IRA—or whether you even can. (Check with your tax or financial advisor to determine the amount you may contribute to a Roth.) Traditional IRAs have no income restrictions. The maximum amount that you can contribute is the same for both types of accounts. For 2016 that amount is $5,500 if you’re under the age of 50 and up to $6,500 if you’re age 50 or older.

Differences in Roth IRAs and Traditional IRAs

The biggest difference between Traditional and Roth IRAs is when you receive a tax benefit. Both types of accounts allow you to defer taxes while your money is in the account. You may be able to claim a tax deduction for your contributions to a Traditional IRA for the year that you make them. Roth IRA contributions are never tax-deductible.

However, once you are retired, withdrawals from a Traditional IRA are generally treated as ordinary income and are subject to income taxes. Qualified Roth IRA distributions in retirement are tax-free. This benefit of Roth IRAs can save you thousands of dollars over the course of your retirement.

Another major difference between Traditional and Roth IRAs is something known as “required minimum distributions” or RMDs. Traditional IRAs require you to take RMDs from your account beginning at age 70 ½. Roth IRAs have no RMD requirements. This means that you will never have to take any money out of your Roth IRA if you do not want or need to and can potentially leave more to your heirs.

For some people, the ability to claim a tax deduction in the current year pushes them toward choosing a Traditional IRA. For others, the ability to withdraw money from a Roth IRA in retirement tax-free—and the flexibility to decide whether to take a withdrawal at all—is the main deciding factor. Because there are so many rules, it is a good idea to consult with your tax and financial professionals before making the final choice.

The Benefits of a Modern Retirement Plan

The Benefits of a Modern Retirement Plan

If you are like most people approaching retirement, you are probably wondering if you’re financially ready. You may have a pension. You plan on collecting social security. You may have put money into your employer’s 401k plan. You and your spouse may each have an IRA and some money in the bank. You may have some life insurance or an annuity or a long-term care policy.  

Does that mean you can retire when you want? The answer is: it depends.

There are lots of things that can happen in the 20 to 40 years you will be retired. Here are a few things that may cause you to ask questions.

Question #1: Is your Social Security safe? 

The Social Security trust fund is currently projected to be able to pay full benefits until 2035. How will it affect you if the funds run out? A retirement plan should answer that question.

Question #2: Is your pension safe?  

Company and public employee pensions are underfunded. What happens if your company, city, or state goes bankrupt? It could happen.

Question #3: How long will your retirement savings last?  

You may be planning on your investments continuing to grow at the rate they have in the past, but what if they don’t?  

Question #4: How risky are the investments in your portfolio?  

Many people have been lulled into believing that all they need to do is put their money into a low-cost index fund. The index lost nearly 50% in 2009 and 34% in March 2020. If you’re still investing in stock index funds as you near retirement just because they’re “cheap,” you may be taking on way more risk than you realize.

Question #5: How much will it cost if you or your spouse need to go into a nursing home?  

Long-term care insurance may pay for it, but the insurance is not free.  For some people buying a policy makes sense, while for others it might not.  A financial plan can help answer whether a long-term care policy is right for you.

Question #6: What happens if inflation comes roaring back?  

Living on a fixed income after you retire makes inflation a much bigger threat than when you were working.  

Question #7: How does living too long or dying too soon affect your retirement plan?

Critical decisions are often made during the retirement process without enough consideration of how long you will live. While a plan can’t answer how long you’ll live, it can project how your plan will be altered if you live longer or shorter than you think.  


In the past, retirement planning was a static process. Planners took the information supplied by their clients and provided a book of charts and graphs designed to show their financial condition for decades in the future. The technology limited what you could do.  

New computer programs allow Financial Planners to run thousands of tests to analyze a number of different scenarios. The new planning process also allows people to check, update, and re-review their plans as time passes and conditions change. These programs allow scenarios to be run in real-time and can be generated for a modest cost by Certified Financial Planners™ (CFP®s) who specialize in retirement planning.

Financial Decision Making in a Crisis (COVID-19)

Financial Decision Making in a Crisis (COVID-19)

The Coronavirus (COVID-19) is both a medical and a financial crisis. There is no question that the arrival of this virus and its effect on the entire world has had a dramatic effect. It recalls a famous poem by Rudyard Kipling:


If you can keep your head when all about you

Are losing theirs and blaming it on you,…

Yours is the Earth and everything that’s in it,

And—which is more—you’ll be a Man, my son!


Most humans overreact to bad news; it’s human nature. We don’t want to minimize a global pandemic but we are surrounded by viruses all the time and live to tell the tale. Most of us lived though the Swine flu, the Zika outbreak, Ebola as well as the annual flu for which we get shots yearly. In the 2017 – 2018 season the seasonal flu killed 61,000 people.

But this time, reacting to predictions of millions of deaths, government officials around the world shut down entire countries. 

The market reaction was immediate and sharp. Within three weeks the Dow Jones Industrial Average dropped 10,000 points. Economists are almost unified in predicting that we’ll see a recession during the second quarter.

There are a few important things to keep in mind.

  • Declines in market prices are perceived as losses. They are not, unless you sell. Then you lock in a loss and you’ll be out of the market when it rebounds as it always does.
  • Uncertainty, not fear of losses, is the largest driver of investor markets. When uncertainties are removed, confidence returns.
  • Avoid TV “Experts.” Remember that the networks are in the advertising business and they grab your attention with scary stories not to inform you but to sell you, the viewer, to their advertisers. 
  • Successful investors take a long view. Market panics are an opportunity to buy investments when they’re on sale.  

People hire financial advisers for their expertise and for a strategy aimed at reaching their goals. Having a strategy and sticking to it in good times and bad removes emotion from the investing equation. We create portfolios that will weather temporary storms like this.

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