Retirement and estate planning should begin as early as possible. This helps you accrue the necessary funds to finance your life after work. It also ensures that your loved ones will receive the things you own, including money, after the end of your life. To help you determine the best options for you, consider this brief guide regarding a Roth and a traditional IRA.

What's the Difference Between a Roth and a Traditional IRA?

A Roth IRA and a traditional IRA are both options for retirement planning. The difference between the two is how the contributions are taxed. In a Roth IRA, every contribution you make is considered after-tax dollars. This means that the contributions do not lower your taxable income. Instead, they're reported and you pay taxes on them each year. This means the money will grow tax-free, and when you go to make withdrawals after the age of 59.5, you won't have to pay any additional tax.

Contributing to a traditional IRA will lower your taxable income for the year, as the contributions are not taxed when you deposit them. Your savings will grow tax-deferred, which means when you withdraw them after the age of 59.5, you'll need to pay taxes on them. 

Things to Consider Before Choosing Between the Two

The main thing you should consider before choosing between a Roth IRA and a traditional IRA is how your future financial situation will compare to your income now. Early withdrawal from either option may result in a fine, but if your taxable income is going to be higher in the future, a Roth IRA may be a better option for your investments. This allows you to pay taxes now, while you're in a lower bracket, and withdraw money tax-free later.

If your taxable income is lower in your later years, a traditional IRA will be more beneficial. Working with a professional can help you better understand your options, and you're always welcome to make contributions to both a Roth IRA and a traditional IRA if your income allows it. Directions for redistribution of either option should also be included in your estate planning. 

To complement your retirement plans, work with the team at Spangler Estate Planning in Greensboro, NC. They'll help you make a few of the difficult choices now so your loved ones are properly cared for in the future. In addition to estate planning, they also offer probate services, wills and trusts, and more. With over 50 years of experience, they know what it takes to help you make the best choices for your family. To learn more about their services, visit their website or call (336) 252-1033 to make an appointment today. You can also get updates and insights on their Facebook.