Retirement Planning is a Process, Not an Event (part 3 of 3) Learn the Roth IRA Rules

Smart Choices Can Play a Key Role in Your Individual Retirement Account Planning

September 2012

Putting together a sturdy retirement plan requires making and then challenging many assumptions about the future.

The younger you are, the more abstract those assumptions can seem: For a 30-year-old, predicting what the tax rate might be in 40 years can be daunting.

Traditional Individual Retirement Accounts (IRAs) are popular because the rules typically offer an immediate tax advantage. Roth IRA rules, on the other hand, do not.

Roth IRA Rules Provide Something Many People Think is More Valuable than an Immediate Tax Advantage.

You'll be allowed to withdraw the money tax-free when you retire. And your decision between a traditional IRA and a Roth IRA often comes down to where you think tax rates are likely to be a few decades down the line.

"When I talk to clients, I often offer the case of my beloved Oakland, California," Timothy R. Yee, the chief retirement specialist at Green Retirement Plans, in Oakland a firm that focuses on socially responsible investments recently told Ally Bank in an interview.

"This city, for example, has allocated $4 million of tax money for pothole repair. But it has $26 million worth of potholes to fill! So it probably makes sense to many people that taxes have to go up," he explained. And the Roth IRA rules offer protection against that kind of seemingly inevitable increase.

The advantages that come by operating under Roth IRA rules are greatest for younger people who currently are in a lower tax bracket than they expect they will be in when they retire. And by putting money into a Roth IRA, in effect, you're locking in current tax rates.

Roth IRAs Also Offer a Little More Flexibility.

In retirement, for one thing, people with traditional IRAs are required to take distributions each year, once they pass age 70�. The Roth IRA rules don't have that requirement.

And although you'll pay the same 10-percent penalty for withdrawing money before age 59� from either a traditional or Roth IRA, you won't be required to pay taxes on the Roth IRA withdrawal.

There also are Roth IRA rules about how much you can contribute. As is true of a traditional IRA, you're entitled to kick in $5,000 to a Roth IRA each year (or $6,000 if you are 50 or older). Be sure to read the Internal Revenue Service's guidelines for all the details.

Ally Bank is Here to Help

We have IRA products that can help you meet your retirement needs with the kind of flexibility that smart retirement planning requires. For example, with the IRA Raise Your Rate CD, you get an interest rate that is among the most competitive in the country. And, if you notice that the current interest rate on our IRA Raise Your Rate 2-Year or 4-Year CDs goes up, you have the option to request a rate increase — one time with the 2-year IRA Raise Your Rate CD and twice with the 4-year version.

Learn more about all the Ally Bank IRA choices, Roth IRA rules and more at or call one of our customer care associates at 877-247-ALLY (2559), where live help is available 24/7.

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