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Traditional vs. Roth: Which is right for you? There's still time to use an IRA to cut 2007 taxes. One of the best places to put your IRA contribution is a Certificate of Deposit — you have until April 15, 2008. But first, choose the IRA that's right for you. Here are three key differences: 1. Deductibility: Roths aren't tax deductible. Traditional IRAs are typically tax deductible, unless your income and participation in an employer-sponsored retirement plan disqualify you. 2. Penalties: Since traditional IRAs use pre-tax dollars, taxes and penalties can apply to withdrawals. But Roth contributions are made with after-tax dollars. The "capital" in your IRA can be withdrawn at any time without penalty. Plus, any interest that remains on deposit for five years is not taxable and can be withdrawn without penalty. 3. Distributions: Traditional IRA distributions have to begin by age 701/2. With a Roth, you are not required to take distributions. We can e-mail you a chart showing differences, plus a link to a helpful IRS document covering all there is to know about IRAs. Click here. Owe Taxes? If you don't have the cash to pay by April 15th, you can file for an extension. Remember that accountants charge for filing extensions, and hefty interest accrues. MainStreet customers often find it's better to use a short-term loan to pay taxes up front. This information is not meant to provide legal or accounting advice. We recommend that you consult your tax advisor regarding the regulations and how they apply to your particular tax situation. Lessons from Bear Stearns. If last-minute action hadn't saved Bear Stearns, could brokerage clients have turned to the Securities Investor Protection Corporation (SIPC) to restore their assets? Note, this protection is limited: If a brokerage goes bankrupt, the SIPC steps in. But is a brokerage engages in fraud or bad investment practices, you're on your own. That's very different from the FDIC insurance that covers bank accounts. To learn more about FDIC protection, Click here. |
March 2008 |
| Quick Connect Save $21 on LifeLock Identify theft protection just $99 for our readers MainStreet Outlook Economic conditions in the local area Tax-Saving IRAs Short-Term Loans Lessons from Bear Stearns FDIC Account Protection More on IRS-related Scams More on IRAs |
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