{"id":4656,"date":"2016-03-03T23:49:05","date_gmt":"2016-03-03T23:49:05","guid":{"rendered":"http:\/\/financiallyfitfoundation.org\/?p=4656"},"modified":"2016-03-03T23:49:05","modified_gmt":"2016-03-03T23:49:05","slug":"4656-2","status":"publish","type":"post","link":"https:\/\/financiallyfitfoundation.org\/site\/4656-2\/","title":{"rendered":"A tax-time retirement tip — sorting out IRA’s"},"content":{"rendered":"
Income taxes are painful and you want to avoid them or pay as little as humanly possible. I get it.<\/div>\n
<\/div>\n
That’s how I was feeling when a tax preparer told me that I owed thousands BUT that I could lower the amount if I put $5,500 (current max allowable per year) in a traditional IRA (Individual Retirement Account).<\/div>\n
<\/div>\n
Save on taxes and for save for retirement all in one move?! A double win!<\/div>\n
<\/div>\n
Well, sorta. I came to realize that it wasn’t such a brilliant plan after all. Let me explain.<\/div>\n
<\/div>\n
In the IRA world there are two basic types: traditional or Roth. The key difference between them is when you pay taxes.<\/div>\n
In a traditional IRA you pay taxes later – you pay it when you withdraw the money during retirement. The upside is that you get the tax deduction now (hence why the tax preparer recommended this one to me).<\/div>\n
<\/div>\n
That sounds all well and good UNLESS you think that you’ll be in a higher tax bracket during those “retirement” years. I’m predicting that in my fifties, sixties, and beyond I’ll be making more money than I do right now. For this reason, the right choice for me is a Roth IRA.<\/div>\n
<\/div>\n
In a Roth IRA you don’t get a tax deduction now but you also don’t pay taxes on the money when you withdraw it later. You essentially pay the taxes on it now and it grows tax-free.<\/div>\n
<\/div>\n
Since I imagine myself earning more as I get older and therefore in a higher tax bracket down the line, I’ll get more value out of giving up the deduction for now and withdrawing all the money later without paying taxes on it.<\/div>\n
<\/div>\n
So while I know every instinct in your body is urging you to pay less in taxes now, take a breath and look into the future – will you earn more or less money in your “retirement” years than you do right now?<\/div>\n
<\/div>\n
If you predict you’ll make more, go with Roth.<\/div>\n
<\/div>\n
If you think you’ll make less, go with traditional.<\/div>\n","protected":false},"excerpt":{"rendered":"

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