Orion Capital Management LLC
1330 Orange Ave., Ste 302
Coronado, CA 92118
619-319-0520
Join Our Newsletter
Read financial tips and market updates in our weekly newsletter
Copyright © 2002 – 2022 Orion Capital Management LLC • Coronado, CA
Disclosure: Orion Capital Management LLC (“Orion”) is an investment advisor registered with the U.S. Securities and Exchange Commission (SEC). The firm offers advisory services in the State of California and in other jurisdictions where registered or exempted. Registration does not imply a certain level of skill or training. The information on Orion’s website or in its distributed commentary shall not be directly or indirectly interpreted as a solicitation of investment advisory services to persons or entities of another jurisdiction unless otherwise permitted by statute. Orion’s individualized responses to consumers in a particular state in the rendering of personalized investment advice for compensation shall not be made without the firm first complying with jurisdiction requirements or pursuant to an applicable state exemption.
The information on Orion’s website or in its distributed commentary is not investment, tax, accounting or legal advice. Orion is not a tax advisor. For tax advice individuals should consult their CPA. This information is also not an offer or a solicitation of an offer to buy or sell any security, or to be construed as an endorsement of any company, security, fund, or other securities or non-securities offering. This information should not be relied upon in the making of investment decisions. All content on this site is for informational purposes only, and nothing herein should be construed as an investment recommendation. Opinions expressed herein are solely those of Orion, unless otherwise specifically cited. Material presented is believed to be from reliable sources, but no representations are made by our firm as to other parties’ informational accuracy or completeness. All information or ideas described on Orion’s website or in its distributed commentary should be discussed in detail with an investor’s personal financial advisors and legal counsel prior to implementation.
Past performance is no indication of future results. Investment in securities involves significant risk and has the potential for partial or complete loss of funds invested.
The information on Orion’s website or in its distributed commentary is provided “AS IS” and without warranties of any kind, either express or implied. To the fullest extent permissible pursuant to applicable laws, Orion Capital Management LLC disclaims all warranties, express or implied, including, but not limited to, implied warranties of merchantability, non-infringement, and suitability for a particular purpose.
Orion does not warrant that the information on Orion’s website or in its distributed commentary will be free from error. Your use of this information is at your sole risk. Under no circumstances shall Orion be liable for any direct, indirect, special or consequential damages that result from the use of, or the inability to use, the information provided on this site, even if Orion or an Orion authorized representative has been advised of the possibility of such damages. Information contained on this site should not be considered a solicitation to buy or an offer to sell any security, or a recommendation to buy or sell any security in any jurisdiction where such offer, solicitation, or recommendation would be unlawful or unauthorized.
Which is Better for You: A Traditional IRA or Roth IRA?
Is it more advantageous for you to contribute to a traditional IRA or a Roth IRA? The IRS recently extended the tax filing due date for 2020 to May 17, 2021. This may give investors additional time to make an IRA contribution for tax year 2020 (although the IRS website, at least for now, still lists April 15, 2021 as the IRA contribution deadline). Most people have the option of whether to contribute to a Roth IRA or a traditional IRA. But which is the better choice? Like so many things in finance, the answer is: it depends.
Traditional IRA
Traditional IRA contributions are made pre-tax. The amount of your contribution, which is limited to $6,000 (or $7,000 if you are 50 or older), reduces the amount of your taxable income for the year. Your IRA can then grow tax-deferred until the government requires you to begin taking distributions at age 72. (These are called Required Minimum Distributions.) At that point, your distributions are taxed as ordinary income.
Roth IRA
Roth IRA contributions, by contrast, are made with money that has already been taxed and do not provide a current year tax deduction. Roth IRAs have the same contribution limits as traditional IRAs. The big benefit of a Roth is that it can continue to grow tax-free forever. Distributions are also not taxed, as the money was already taxed before it was contributed. Also, there are no Required Minimum Distributions with a Roth as with a traditional IRA.
The Key Question
The main difference between the traditional IRA and Roth IRA is when you get the tax break. With a traditional IRA, you get the break upfront, but have to pay tax on your distributions later. With the Roth, you get no current year tax break, but you don’t ever have to pay taxes on your earnings or distributions. Usually, deciding on which type of IRA is better for you hinges on the answer to one question: is your tax rate now higher than it will be for you in retirement? If the answer to that question is yes, the traditional IRA may be the way to go. If the answer is no, the Roth IRA may be your best bet.
Important Roth Benefit
One place where the Roth holds an advantage over the traditional IRA is that contributions can be withdrawn at any time with no tax and no penalty. With a traditional IRA, distributions made before age 59 ½ may be assessed a 10% penalty.
There are, of course, other considerations and strategies to make the best use of traditional and Roth IRAs. As always, when it comes to making financial moves, what’s right for one person’s situation may not be right for someone else. Please contact us if you would like to discuss your financial situation with us.
Image: designer491 via Canva.com
Share This!
Join Our list!
Join our email newsletter list to receive more market updates and financial articles like this one.
Fed Wringing Market’s Neck
Mid-Quarter Update Well, folks, it’s tough out there in the markets. How tough? From January through April, it’s the worst
Fed Gears Up for Inflation Fight
The world’s attention is still rightly focused on the horrific Russian invasion of Ukraine and the mounting civilian casualties, but
Ukraine Invasion Jolts Markets
Special Market Update Russia’s unprovoked invasion of Ukraine, a sovereign country with a democratically elected government that poses no security
Peter Thoms, CFA, MBA