Individual Retirement Accounts (IRAs) are a great investment vehicle to build wealth because of the tax advantages and compounding earnings. Compounding earnings tax-deferred in a Traditional IRA, or tax-free in a Roth IRA, are the best strategies to build long term wealth for retirement.
Traditional IRAs have the advantage of an immediate tax deduction for contributions. This can be a very important advantage for individuals in high income tax brackets. With a Traditional IRA the owners have the opportunity to convert to a Roth IRA at a future date when the timing is right.
A Roth IRAs main advantages are that the tax is already paid; contributions grow tax-free as long as they are withdrawn after age 59 ½ and the owner has had the Roth IRA for five years. In general, the longer the time period, the more advantageous the Roth IRA is because of the powerful advantages of compounding. Unlike a Traditional IRA, Roth IRAs are exempt for required minimum contributions (RMDs) during retirement. Roth IRA owners are not required to withdraw anything if they don’t need the money.
Both Traditional and Roth IRAs are great retirement planning vehicles. Anyway you look at it, Traditional or Roth; IRAs are a powerful tool to build long term wealth.
| AAAMP Blog by Ken Faulkenberry | |
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Ken Faulkenberry earned an MBA from the University of Southern California (USC) Marshall School of Business with an emphasis in investments. Ken has 25 years of investment experience and is dedicated to helping people with self-directed investment management through the Arbor Investment Planner. His asset allocation strategies have an outstanding performance record. |
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