I currently have a Roth IRA which I opened when I was 22 years old. Im now 26 and am socking away X amount each month and sometimes a little more after I save a little extra.Would it also be wise to open up a Traditional IRA to reap the tax benefits as well or is the Roth IRA sufficient as a retirement vehicle?
Answer1:Roth or Traditional all depends on where the money is coming from.If the money you are putting into an IRA has already been taxed, than you need a Roth IRA. If the money has not been taxed, then you need a Traditional IRA. So for instance, if you can get pre-tax money from your paycheck and funnel it into an IRA, you need to open a Traditional IRA. If youve already been milked by Uncle Sam on your paycheck, then go Roth.If you inherent a bunch of money from a relatives retirement account (ie: Dear Old Mom wills you her 401k), you want to put that money into a Traditional IRA.
Answer2:You can have both but your contributions are limited to $5000 for ALL of your IRAs combined.At your age, I would but as much as you can afford in to the Roth and ignore any thoughts of a Traditional IRA unless you need one for 401k rollovers from jobs you left.I have 2 Roths and a Traditional. I only contribute to the Roths. The Traditional is just holding a rolled over 401k.
Answer3:The maximum you can invest in IRA, for 2008 was $5000 (I am not sure about the limits for this year) and you can put the money in Roth or Traditional IRA. It doesnt matter really how you allocate the contributions as long as you dont invest more than the $5000. I recommend Roth because withdrawals are tax-free. With Traditional IRA you take the deduction right away but the withdrawals are taxable.
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