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Monday, March 2, 2009

Roth IRA or Traditional IRA?

By Jack Jones

A Roth IRA is a personal retirement fund started in 1997 to help encourage people to plan for their own retirement instead of relying on the social security system.

The Roth IRA shares many things in common with a traditional IRA. But there are a few main differences that you should be aware of when deciding which one is right for planning your retirement. Here are a few of them.

One of the main differences that comes to mind is that the traditional IRA is tax deductible. You are allowed to deduct the amount contributed to the fund for that year from your income when filing taxes. But the Roth IRA is not allowed as a tax deduction.

A traditional IRA allows for a few penalty free withdrawals, but they have very strict rules and can only be taken advantage of in very specific circumstances. This is a bit frustrating because you can not access your earnings until you retire.

The Roth IRA is much more loose with the withdrawal allowances. After five years you are allowed to withdraw the funds contributed.

The looseness of the Roth IRA has led some to use it as an emergency account for unexpected costs. After the 5 years, you can use it for emergencies and if there are none then you have a good start toward retirement.

It is important to pay attention to your personal circumstances befpre diciding how to plan for your retirement.

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