What is A Traditional IRA?

Want to know, what is a traditional IRA? Well this plan which is also known as a regular IRA was created in 1975 in order to give the common worker some tax free retirement benefits. The Traditional IRA rules can benefit many individuals and is easy to set up.

After you create an IRA account you can deposit money into the account and write it off from your taxes. When you eventually pull money out you will have to pay taxes on the profits you have made.

IRAs can be created at nearly every major banking and brokerage organization and you are allowed to invest in any investment which that organization allows. For instance they may allow stocks, bonds, mutual funds and CDs.

In order to set up a regular IRA account you must pass two criteria’s, you must be under the age of 70 ½ and you must have sufficient income coming in, in order to deposit money into the plan. So the rules are not as strict as a Roth IRA.

But there are some advantages of this plan let’s compare the two to get a good idea of the pros and cons of each. Alright here we go Roth IRA vs Traditional IRA.

Advantages of a Regular IRA

1. Minimum requirements – it is a lot easier to get accepted
2. Taxed write off– All money you deposit into a traditional IRA can be written off, not true with a Roth IRA

Disadvantages

1. Penalty for early withdrawal – unlike a Roth IRA you get charged a 10% penalty if you take out money before age 59 ½ .
2. Withdrawals Mandatory after age 70 ½ - Unlike Roth IRAs you must take a minimum out every year in a traditional IRA.

So which is better? Well each is better in different situations. In general a Roth IRA can have a bit more advantages if you want to take out money early, but they also have a lot of other rules which can be unfavorable to you.

If you do not like the roth ira rules a traditional IRA can still have many great advantages over other savings accounts and should not be overlooked.

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