Many people are interested in diversifying their investment portfolio with either a traditional IRA or a Roth IRA. Others may not have employer-provided retirement accounts and want to invest in their own retirements. No matter the situation, IRAs provide a worthwhile option for investing in your own retirement.
A common question we often receive is “how much money do you need to start an IRA?” This could be either a traditional or a Roth IRA.
This post dives into this question to give you all the information you need. We’ll outline the differences between traditional and Roth IRAs to help you determine which option is best suited for your unique financial situation.
Minimum IRA Startup Costs
The truth is that the amount it takes to start an IRA, whether traditional or Roth, is nothing (or perhaps a dollar). Of course, that is not going to take you anywhere close to your retirement goals.
The reality is that you don’t need a huge sum of cash to start an IRA. However, you can take full advantage of the benefits of either traditional or Roth options with the right strategy.
Understanding Traditional IRA and Roth IRA
Below is a simplified breakdown of the differences between traditional and Roth IRAs.
Traditional IRA
You can contribute at any age – so long as you are receiving taxable compensation (like work income).
Your money grows in the account tax-free. You pay taxes on your distributions once you reach retirement age.
You can contribute up to $6000 a year if you are under 50, and $7000 for 50+.
You can deduct your yearly contributions based on some qualifications.
You have to start taking distributions the year after you turn 72.
You must generally pay taxes on distributions with a higher rate if you take money under the age of 59½ (10% additional).
Roth IRA
- You can contribute at any age – so long as you are receiving taxable compensation (like work income).
- You contribute with money already taxed, so you do not pay income taxes when you withdraw.
You can contribute up to $6000 a year if you are under 50, and $7000 for 50+.
You cannot deduct yearly contributions.
You don’t have to take distributions until you opt for them.
You do not have to pay taxes for qualified distributions since you paid taxes on the front end of your contribution. If withdrawing under the age of 59½, you will face a 10% tax rate.
Which IRA Option is the Best?
The answer to this question depends on your particular situation, your financial goals, and several other factors. Both traditional IRAs and Roth IRAs have advantages. But you need to be smart about deciding which one works best for you. Do you need help figuring out the best IRA options for your family? Let the financial advisors at Delta Capital Management help. We offer a wealth of knowledge and expertise related to IRAs and other retirement accounts. An advisor will listen to your story, learn your goals, and guide you to the best financial choice relative to your objectives. To learn more about Delta Capital Management, get in touch with our team today.
