Contributions are tax-deferred, so you will only need to pay taxes on the amount you withdraw in the future, a little bit at a time, not all at once. You control when your taxes are paid.
The most important difference between traditional IRAs and Roth IRAs is the timing of your tax break. With a traditional IRA, your contributions are made “pre-tax” (meaning your contributions are deducted from your total income for the year, assuming you meet certain eligibility requirements). With a Roth IRA, contributions are made “after-tax”, so withdrawals are not taxed. Typically, you’d choose a Roth IRA if you think your tax rate will be higher in the future, and a traditional IRA if you think your tax rate will be lower in the future. However, there are federal eligibility requirements that may ultimately determine which type of IRA you are eligible for.
The main advantages of a traditional retirement account are:
There are a number of factors to consider when choosing whether to open a traditional or Roth IRA. You don’t have to go to a big bank to open a traditional IRA account. Here at Liberty, we can help you decide if a traditional IRA is right for your financial situation.
If you convert a traditional IRA to a Roth IRA in Illinois, your funds will not be subject to income tax upon withdrawal. That’s because the state of Illinois excludes Roth IRA distributions from state taxable income and does not tax the conversion of a traditional IRA to a Roth IRA.
We can help you convert your IRA to take advantage of these savings.