Traditional IRA vs, can i have both a traditional and roth


Traditional IRA vs. Roth IRA

Note: The article below refers to the 2017 tax year. You have until the tax filing deadline—April 18, 2018—to make a 2017 contribution. Click here for Roth IRA Eligibility rules, or visit these links for current contribution limits or current income limits.

Comparing Roth and Traditional IRAs

Trying to decide between a Traditional IRA or a Roth IRA?

The type of individual retirement account (IRA) you choose can significantly affect your and your family’s long-term savings. So it’s worth understanding the differences between Traditional IRAs and Roth IRAs in order to select the best one for you.

Here are the key considerations:

Income Limits

Anyone with earned income who is younger than 70½ can contribute to a Traditional IRA. Whether the contribution is tax deductible depends on your income and whether you or your spouse (if you re married) are covered by a retirement plan through your job, such as a 401(k). Click here for details from the IRS.

Roth IRAs don t have age restrictions, but they do have income-eligibility restrictions: Single tax filers, for instance, must have modified adjusted gross incomes of less than $133,000 in 2017 to contribute to a Roth IRA. (Contribution limits are phased out starting with a modified AGI of $118,000, per IRS guidelines.) Married couples filing jointly must have modified AGIs of less than $196,000 in 2017 in order to contribute to a Roth; contribution limits are phased out starting at $186,000.

Tax Incentives

Both Traditional and Roth IRAs provide generous tax breaks. But it’s a matter of timing when you get to claim them. Traditional IRA contributions are tax-deductible on both state and federal tax returns for the year you make the contribution; withdrawals in retirement are taxed at ordinary income tax rates. Roth IRAs provide no tax break for contributions, but earnings and withdrawals are generally tax-free. So with Traditional IRAs, you avoid taxes when you put the money in. With Roth IRAs, you avoid taxes when you take it out in retirement.

Of course, with both types of IRAs, you pay no taxes whatsoever on all of the growth of your contributed funds, as long as they remain in the account.

Withdrawal Rules

One major difference between Traditional IRAs and Roth IRAs is when the savings must be withdrawn. Traditional IRAs require you to start taking required minimum distributions (RMDs), mandatory, taxable withdrawals of a certain percentage of your funds, at age 70½, whether you need the money at that point or not. Roth IRAs, on the other hand, don’t require any withdrawals during the owner’s lifetime. If you have enough other income, you can let your Roth IRAs continue to grow tax-free throughout your lifetime, making them ideal wealth-transfer vehicles.

The same applies to your heirs. Beneficiaries of Roth IRAs don’t owe income tax on withdrawals and can stretch out distributions over many years. However, beneficiaries may still owe estate taxes.

Both Traditional and Roth IRAs allow owners to begin taking penalty-free, “qualified” distributions at age 59½. However, Roth IRAs require that the first contribution be made at least five years before the first withdrawal, in order to avoid incurring a tax payment. If you meet that benchmark (and you only have to meet it once), you will have only paid taxes on what went into the account, not the sum you eventually take out.

Extra Benefits Considerations

It’s also worth factoring in some of the specific rules and benefits of Traditional and Roth IRAs. Here’s a breakdown:

Traditional IRAs:

  • Contributions to Traditional IRAs lower your taxable income in the contribution year. That lowers your adjusted gross income, helping you qualify for other tax incentives you wouldn’t otherwise get, such as the child tax credit or the student loan interest deduction.
  • If you are under 59½, you can withdraw up to $10,000 from your account without the normal 10% early-withdrawal penalty to pay for qualified first-time home-buyer expenses and for qualified higher education expenses. Hardships such as disability and certain levels of unreimbursed medical expenses may also be exempt from the penalty, However, you’ll still pay taxes on the distribution.

Roth IRAs:

  • Roth contributions (but not earnings) can be withdrawn penalty- and tax-free at any time, even before age 59½.
  • If you are under 59½, you can withdraw up to $10,000 of Roth earnings penalty-free to pay for qualified first-time home-buyer expenses, provided at least five tax years have passed since your initial contribution.
  • Roth IRAs can be invested in literally anything you want: index funds, lifecycle funds, individual stocks, or even alternative investments. In contrast, there are some limits to the types of assets a Traditional IRA can hold.

Future Tax Rates

Deciding between a Traditional or Roth IRA depends, basically, on how you think your income – and by extension, your income tax bracket – will compare to your current situation. In effect, you re trying to determine whether the tax rate you pay on your Roth IRA contributions today will be greater or smaller than the rate you ll be paying on distributions from your Traditional IRA after you ve retired (or have to start making them, at age 70½).

Of course, it’s hard to predict what federal and state tax rates will be 10, 20 or 40 years from now. Given today’s historically low federal tax rates and the large U.S. deficit, many economists believe federal income tax rates will rise in the future – meaning Roth IRAs may be the better long-term choice. But of course, no one knows.

Still, you can ask yourself some basic questions about your personal situation: Which federal tax bracket are you in today? Do you expect to be in a higher or lower one after you retire? Will your annual income increase or decrease? Although conventional wisdom suggests that gross income declines in retirement, taxable income sometimes does not. Think about it. You ll be collecting (and owing taxes on) Social Security payments. You might opt to do some consulting or free-lance work, on which you ll have to pay self-employment tax. And once the kids are grown and you stop adding to the retirement nest egg, you lose some valuable tax deductions and tax credits. All this could leave you with higher taxable income, even after you stop working full-time.

Tax Deductions Vs. Tax Credits

A quick primer on tax deductions and tax credits:

A tax deduction is an item the government lets you write off of your taxes to lower your total taxable income. Deductions usually only apply if you itemize them, rather than taking the standard deduction (which comes to $6,350 for single taxpayers and $12,700 for married taxpayers filing jointly in tax year 2017 ). Itemizing deductions is beneficial only if the total amount surpasses the sum for the relevant standard deduction you qualify for. Deductions basically get you a discount on the tax you pay. You don’t take a dollar off of taxes for every dollar spent; instead, every dollar that is deducted from your taxable income lowers the amount of income you will be taxed on. If you are in the 25% tax bracket, for example, every dollar you deduct gets a 25-cent tax break.

In contrast, a tax credit is a direct reduction of the amount of tax you owe. Common credits are issued for spending money on green home improvements or for going back to school. No matter which credits you use, you are slashing your tax bill to the federal government: If you have $2,000 in tax credits, your taxes drop by $2,000. You can take credits whether you take a standard deduction or itemize deductions.

Tax credits are usually more elusive and not as easy to claim as tax deductions – but they are much better, because they always reduce your taxes. If you have the opportunity to take a $5,000 tax credit or a $5,000 tax deduction, the credit is the better deal. Say you have a tax bill of $10,000. The deduction would lower your taxable income by $5,000; so, if you were in the 25% tax bracket, your taxes would be reduced by $1,250 to $8,750. A credit would directly lower the tax due to $5,000, and that s regardless of your bracket.

Comparing Roth and Traditional IRAs

This table lays out the differences between the two types of IRAs. Keep in mind that Congress can change these rules at any time. The regulations may be very different when you retire.


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Positive Psychology: The Benefits of Living Positively #connotations,conscious #mind,counselors,hippie,illnesses,inner #happiness,martin #seligman,material


Positive Psychology: The Benefits of Living Positively

Positive psychology often is passed off as pop psychology or New Age-y by those who haven’t actually looked into it.

The actual theory behind positive psychology was defined in 1998 by Martin Seligman and Mihaly Csikszentmihalyi [1] and looks at all aspects of a person’s psychology. It does not discount traditional psychology, nor supersede it. Rather than viewing psychology purely as a treatment for the malign, however, it looks at the positive. Positive psychology is a recognized form of therapy and is offered by some counselors and psychologists.

Psychology has always been interested in where people’s lives have gone wrong, and what has resulted because of it [2]. Illnesses such as depression are well-documented and patterns of depressive behavior well-known. However, until recently, what makes people happy and how they achieve inner happiness and well-being has been a mystery.

Practitioners of positive psychology study people whose lives are positive and try to learn from them, in order to help others achieve this state of happiness [3]. It is a scientific study and not remotely hippie-ish, despite its connotations.

Positive thinking is one aspect of positive psychology. Surrounding yourself with a great lifestyle and material goods may seem to lead to happiness, but how you really feel is governed by what goes on inside your head. When you go out of your way to think positively, you actually purge yourself of negative self-talk. [1]

Negative self-talk is one of the biggest barriers to positive thinking. People become so accustomed to negative thinking that their conscious mind will pull them down, even when they have done nothing wrong. These people become insecure, overly apologetic and indecisive. Worse still, they open the door to numerous stress-related problems.

Negative thinkers have four common mindsets:

Many negative thinkers will pull the negatives out of a situation and focus on them. Sometimes these people will see only the negative in a situation, to the point where they deny any positive.

  • Personalizing.
    Some people make every tragedy about themselves. They will personalize every negative thing and assume that bad things happen because they are unlucky, or as a result of something they did or didn’t do. They will often construct negative situations with perfect logic, providing plausible reasons why negative things are either their fault or set out to hurt them.
  • Catastrophizing.
    This involves anticipating the worst. Some people even precipitate it. They can turn a slightly awkward interaction into an overreaction, making the situation worse. If something negative does happen, they will use it to validate their negative assumptions.
  • Polarizing.

    This type of negative thinker sees things as black or white. Either a situation is perfect or it is a catastrophe. This type of negative thinking can affect every area of a person’s life. Its effects can be both psychological and physical. By practicing positive thinking, you can actually stave off medical conditions and reap the benefits of having a positive outlook on life.

  • Depression is complicated illness with physical and mental health elements. It would be flippant to suggest that someone with a positive outlook will not encounter depressive feelings.

    However, positive psychology can be beneficial in treating depression. It can equip sufferers with the tools to stop downward spirals when they begin and help them to see the positive aspects to their lives. It can also help to stop the negative thinking habits that are common in depression. [4]

    Scientific studies also show that there is a direct link between stress and the immune system. When a person is experiencing a period of stress and negativity, his or her body is less able to mount an inflammatory response to attacks from bacteria and viruses. This results in an increase in infections such as the common cold and cold sores. [5] Having a positive outlook on life also equips people better for dealing with serious illness. Tackling diseases such as cancer with optimism and self-belief has shown to have a beneficial effect on recovery and ability to tolerate treatment.

    Among the other health benefits listed above, positive thinkers have a lower incidence of cardiovascular disease. They tend to have lower blood pressure than those who do not engage in positive thinking. The health benefits extend to the emotional side, too. optimists will have better physical and psychological well-being, and better skills for coping with stress and hardship.

    It is important to remember that simply having a positive mindset won’t actually stop bad things from happening. But it does give you the tools to better deal with bad situations. Sometimes your coping skills come down to nothing more than refusing to give in to your negative side and your fears. For some people, positive thinking comes quite naturally. For others, seeking professional help is necessary to get them on the right track.

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    Traditional IRA versus Roth IRA #can #i #contribute #to #a #roth


    Traditional IRA versus Roth IRA

    Which Is Better – A Traditional IRA or a Roth IRA?

    The Roth IRA and the Traditional IRA both have benefits and drawbacks. By going over the pros and cons, I hope to help you get an idea of which retirement wealth building tool is more appropriate for your individual situation and objectives. Nick M. Do / E+ / Getty Images

    Updated April 30, 2017

    Here s a common question asked by investors everyday. Which is better: a Traditional IRA or a Roth IRA? While both have their advantages and disadvantages, each are fantastic ways to save for your golden years, but in almost all apples-to-apples comparisons, the Roth IRA is going to win. Quite frankly, a Roth IRA is the closest thing to a perfect tax shelter you re probably ever going to find. So much so that almost anyone who qualifies should definitely consider adding a Roth IRA to their investment toolbox .

    Nevertheless, it is important that you understand the differences between the two accounts. Over the next five to ten minutes, let s examine both the Traditional IRA and the Roth IRA so you can get a better idea of how each one might fit within your overall portfolio.

    Both a Traditional IRA and a Roth IRA Are Types of Accounts, Not Investments

    Think of both the Traditional IRA and the Roth IRA as a type of box. Many different assets can go inside of it – stocks. bonds. real estate. mutual funds. index funds. money markets or certificates of deposit – but it s such a good deal, Congress limits the amount of money you can put into that box every year. This is known as a contribution limit. Depending upon which type of IRA you select, the tax consequences will be different.

    An Overview of the Traditional IRA

    • Contributions are tax deductible at the time they are made for individuals and families earning less than the income limitations in effect for any given year, which are regularly updated by the IRS. For example, a couple of years ago, I detailed the then-in-effect Traditional IRA income limitations for tax year 2014 to demonstrate how the rules work. However, even if you exceed the Traditional IRA income limits for tax deductibility, you can still take advantage of the tax-deferred compounding (see next point). The contribution limits themselves consist of a base contribution limit and a catch-up contribution limit that people 50 years or older can use, if they like. For example, in 2015, the base contribution limit was $5,500 and the catchup contribution limit was $1,000, so a person who was 52 years old, and otherwise qualified for a Traditional IRA, could contribute $6,500 to his or her account.
    • The years in which your money is sitting in your Traditional IRA, as long as you follow the rules, you shouldn t owe any taxes on any of the investment profits you generate. That means no taxes on capital gains and no taxes on dividends, interest, and rents. Even if you find yourself sitting on millions upon millions of dollars in profits, as long as it is within the protective confines of the account, the Federal, state, and local governments get none of it.
    • You can begin making withdrawals from your Traditional IRA at the age of 59.5 years old without having to pay the early withdrawal penalty. You must begin taking withdrawals, and paying tax upon those withdrawals (all withdrawals are taxed, including past contributed principal since it was tax-deductible at the time the contribution was made), by the age of 70.5 years old so you can t accumulate too much money in the tax shelter.
    • Traditional IRAs and Roth IRAs are extremely useful asset protection tools. Under the present three-year bankruptcy protection limit set on April 1, 2016, which is adjusted every three years, an investor can have up to $1,283,025 in combined balances across both types of IRAs and have it exempted from creditor claims. Married couples can effectively double this amount since both the Traditional IRA and Roth RIA must be owned by an individual (there s no such thing as a jointly owned IRA). This is one of the major reasons it is almost always wise to seek the counsel of a qualified, respected bankruptcy attorney prior to any serious decisions when you are facing financial hardship. The worst thing you can do is draw down your Traditional IRA or Roth IRA balance then declare bankruptcy, anyway, as you ve cost yourself years, perhaps even decades, of rebuilding when you could have emerged from the courthouse with your retirement funds intact.

    An Overview of the Roth IRA

    • Contributions to a Roth IRA are not tax deductible at the time they are made. However, unlike a Traditional IRA and subject to certain minimal conditions, if you need to make a withdrawal of your past principal contributions, you can do so tax-free without an early withdrawal penalty, though you won t be able to replace the funds, again, once they ve left the account. There are tax consequences for any investment gains or other funds in excess of the historical contributions into the Roth IRA if taken before the age of 59.5 years old.
    • During the years the money is in the Roth IRA, as long as you follow the rules (e.g. don t use borrowed money that leads to the unrelated business income tax, don t invest in MLPs. etc.), any profits you generate should all be tax-free.
    • There is no mandatory distribution age. If you live to be 105 years old and end up with a $25,000,000 Roth IRA because you discovered the next McDonald s, Home Depot, Microsoft, Apple, or Berkshire Hathaway, you aren t going to have to give a dime of it to Federal, state, and local governments were you to make a withdrawal and begin spending it under the present rules.
    • The same bankruptcy protections that cover the Traditional IRA also cover the Roth IRA (see above).
    • The tax shelter benefits are so extraordinary for a Roth IRA that Congress specifically limits it to individuals and families with adjusted gross incomes of less than certain pre-determined thresholds. These are updated every year. A few years ago, I broke out the then-in-effect 2014 Roth IRA income limit rules. which can serve as a useful template for understanding how the calculations work.

    The tax benefits of the Roth IRA are so extraordinary that many Americans who don t qualify because they make too much money engage in a technique called a backdoor Roth IRA that involves funding a Traditional IRA, then converting it to a Roth IRA.

    Where Can I Open a Roth IRA or Traditional IRA?

    As previously mentioned, a Roth IRA and a Traditional IRA are both types of accounts. not investments. so you can open either with many different types of financial institutions. If you go to a bank or credit union, they might offer either IRA but only allow you to put certificates of deposit into them. If you own either type of IRA with a discount brokerage firm such as Charles Schwab or Scottrade, you can put almost anything that is publicly tradable into it, including exchange traded index funds such as SPDRS or blue chip stocks. Some investors who exclusively use mutual funds for their retirement needs prefer to open a Traditional IRA or Roth IRA directly with a mutual fund family such as Fidelity or Vanguard.

    How Much Money Do I Need To Open a Roth IRA or Traditional IRA?

    The minimum opening balance for either type of IRA is determined by the financial institution with which you are opening the account. Some require $1,000 to $3,000. A few will allow you to kick in as little as $100 on the condition that you save at least so-much per month for a given period of time to demonstrate you are serious about building wealth .

    Can I Have Both a Traditional IRA and a Roth IRA?

    Absolutely. Millions of Americans do. You can even add funds to both in the same year provided your total, combined contribution doesn t exceed the contribution limits in effect for the year. For example, in a year where a person who is 37 years old can only contribute a total of $5,500, that person could put $2,000 in a Traditional IRA and $3,500 in a Roth IRA because, combined, they are still at, or under, the $5,500 limit. If you exceed the contribution limits and don t rectify it within a certain window of time, the government will assess confiscatory taxes that will ultimately wipe out the surplus balance.

    Can I Have a Roth IRA and/or Traditional IRA Plus a Retirement Account at Work?

    Yes. In addition to funding a Roth IRA or Traditional IRA each year, you can also fund a Traditional 401(k). a Roth 401(k), a Solo 401(k). a 403(b). SEP-IRA. SIMPLE IRA. or other qualified plan. These often have other advantages of their own, including unlimited bankruptcy protection on top of the bankruptcy protection offered on the IRAs discussed in this article.


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    NWA Roofing #roofing #installation #and #roofing #repair, #asphalt #shingle #roof #repair,


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