Video:How to Decide Which IRA Is Best for You

Transcript:How to Decide Which IRA Is Best for You

Hi, I’m a Bradley Rudman. I’m a certified financial planner with Rudman, Cannon Financial Advisers, here in New York City for About.com. I’m going to talk to you today about how to decide which IRA is best for you.

Choose an IRA for Your Tax Bracket

The choice between a traditional IRA and a Roth really depends on what income tax bracket you’re in. If you’re in a top bracket, 35% , and if you live in a state like New York, where your total tax rate is going to be approaching 40-45%, if you put 2,000 dollars in a traditional IRA you’re going to realize 800 to 900 dollars of tax benefit. So, basically, the IRS is subsidizing your investment. If you’re in a low income tax bracket, then it doesn’t really pay as much and then I would recommend the Roth. Let it grow tax free and then when it comes out – it comes out tax free.

Advantages of a Roth IRA

So, if you’re not getting that big benefit up front, of a tax deduction, then I would recommend also doing the Roth. The limits for either IRA, a traditional or a Roth, are 5,000 dollars and if you’re over 50 years old you put 6,000 dollars in. You can split it up. Another criteria I use, I take a look at how much money they have accumulated for retirement and I see if they’ve accumulated a lot of money that’s going to come out taxable when they take it out, then I tend to lean more towards the Roth. Start accumulating money that will come out tax free when they retire.

Now, if it’s a younger person that’s just starting off, OK, and they really don’t - haven’t accumulated too much money that I can know what’s going to happen in retirement I sort of like to go 50/50, as a general rule, to start accumulating as much money in both buckets as possible. The longer a person has to save, the faster it’s going to grow and the better it’s going to work in the long term.