IRAs are a great way to save money for retirement, but boomers will have a tough choice between investing in a traditional IRA or a Roth IRA. Do you know the differences between the two options and which one is best for you?
Take our quiz to see how well you understand the important distinctions.?
Generally speaking, traditional IRAs offer a tax deduction and tax-deferred growth.
True: For most middle-income taxpayers, traditional IRAs offer a tax deduction and tax-deferred growth.
True or false: Roth IRAs are funded with after-tax dollars but offer tax-free growth and tax-free distributions in retirement.
True: Roth IRAs are in fact funded with after-tax dollars, but they offer tax-free growth and distribution in retirement.
What is the maximum amount you can contribute to a Roth IRA per year if you are 50 or older?
$6,000.
People who are 50 or older can contribute a maximum amount of $6,000 per year to an IRA account. People who are under 50 can make a maximum contribution of $5,000 per year. The same rules apply for traditional IRAs.
What types of real-estate does a self-directed IRA allow you to invest in?
All of the above: Self-directed IRAs give you the flexibility to invest in many different types of real-estate, ranging from residential to commercial properties.
Some important considerations when choosing between a traditional IRA and Roth IRA include which of the following?
All of the above: All of the above are important considerations that can affect your ability to contribute to a particular type of IRA.
Distributions from a Roth IRA are tax-free when you withdraw the money after what age?
59.5: Distributions from a Roth IRA are tax-free when you withdraw the money after age the age of 59.5. However, you must have also owned the account for 5 years or more.
True or false? According to IRS rules, you must begin taking distributions from a traditional IRA the year after you turn 70.5.
True: For traditional IRAs, IRS rules mandate that you begin taking deductions the year after you turn 70.5.
If you have not saved a lot for retirement and live on a tight budget, which investment option would be best?
Traditional IRA: According to many financial advisors, you should consider a traditional IRA in this case because you can contribute to the account and also receive a tax deduction at the end of the year.
When did the Roth IRA first become available?
1998: The Roth IRA became available in 1998.
