A Roth individual retirement account (IRA) is a wise choice for many people: But there also are smart reasons why you might choose a traditional IRA as a savings vehicle for retirement — especially if you'd like to reduce your tax burden now, not when you retire.
Contributions to a traditional IRA are tax-deductible when you make them, up to government-set income limits. Income to a Roth IRA aren't deductible, but withdrawals are tax-free (again, subject to limits).
With a traditional IRA, the advantage is that "You get a tax deduction for your contribution on the front page of your 1040 [tax form], and all income and growth on the IRA is tax deferred until you begin to withdraw funds," Georgia Bruggeman, a certified financial planner with Meridian Financial Advisors, LLC, in Holliston, Massachusetts, told Ally Bank during a recent interview.
This can be especially valuable if it lets you contribute more to your IRA — every dollar you sock away will have more time to grow through the powerful effect of compound interest.
A traditional IRA also can make sense if you believe you'll be living on less when you quit working. "If you think you will be in a lower tax bracket at retirement, then the [traditional] IRA is an excellent savings vehicle," added Bruggeman.
For many people, traditional IRAs come with another advantage: If you're not covered by a retirement plan at work, your IRA contributions or tax deduction aren't limited, even if your income is above a certain level.
With a Roth IRA, allowable contributions are curtailed and then eliminated as your modified adjusted gross income, as determined for tax purposes, reaches specified levels. If you or your spouse is covered by another plan at work, income-based limits do apply to both Roth and traditional IRA contributions.
Ally Bank IRAs come with rates consistently among the most competitive in the country according to rates as published by Bankrate and the security of your deposits being insured by the Federal Deposit Insurance Corporation (FDIC), up to the maximum allowed by law.
If you think a traditional IRA might be right for you, you can find out more about Ally Bank IRA CDs or our IRA Online Savings Account at Allybank.com, or by calling 877-247-ALLY (2559), where live customer care is available 24/7.