Research Exercise: Traditional vs. Roth IRA Due in Brightspace by date and time

Question

Research Exercise: Traditional vs. Roth IRA Due in Brightspace by date and time specified on class assignment schedule. Situation: You have just started a full-time job with a public accounting firm. Your salary is $53,000 and your company provides the option of investing in either a Traditional or Roth IRA. The company will match up to 5% for one of these options. Executive Summar Upon completing your research into Traditional and Roth IRAs, you must communicate your findings in an easily comprehensible manner. For the purpose of this class, you will do so by writing an executive summary. The idea is to present the topic in an objective manner by discussing relevant authorities and information. This is not persuasive writing; therefore, you should not pick a side. The purpose of this executive summary is to provide an overview of the Traditional and Roth IRA options. Guidelines The executive summary should be a concise double-spaced 1.5 to 2-page summary with normal margins and Times New Roman 12 pt. font that addresses key points of consideration for anyone making a decision between these two options. Your discussion can include, but is not limited to a description of each option, who qualifies, what are the income limits, what are the tax incentives/penalties associated, what are the withdrawal rules, am I eligible, etc. Major sources of information should come from the Internal Revenue Code, regulations, rulings, etc. as well as some editorial (secondary resources) that may be available through RIA. These sources should be cited using Chicago-style footnotes (see Brightspace content for citation manual). INote: You will not have a Works Cited or Bibliography page.] At your current level of education, grammar and form should be up to par, which means you should thoroughly read your writing to check for mistakes and/or take it to the writing center to be examined. Your writing should contain an introduction, body, and conclusion while avoiding bullet points and abbreviations. For further information or help with grammatical issues, please look at the grammar pet peeves and cheat sheet for help

Explanation / Answer

Contributions may be deductible, depending on tax-filing and active-participant statuses, as well as income amount.

Distributions may be taken at any time. Distributions are tax and penalty free if qualified

Comparing Roth and Traditional IRA Parameters Roth IRA Traditional IRA Contribution limiit The year's regular contribution limit plus a catch-up contribution for those at least 50 years old by year end. The year's regular contribution limit plus a catch-up contribution for those at least 50 years old by year end. Deductability Contributions are never deductible.

Contributions may be deductible, depending on tax-filing and active-participant statuses, as well as income amount.

Age Limitations No age limitations on contributions. No contributions allowed after and for the year the taxpayer attains age 70½. Tax Credit Available for “saver’s tax credit.” Available for “saver’s tax credit.” Income Caps for Contributions Income caps may prevent taxpayers from contributing No income caps will prevent taxpayers from contributing. Distributions Rules

Distributions may be taken at any time. Distributions are tax and penalty free if qualified

Distributions may be taken at any time. Distributions will be treated as ordinary income and may be subjected to an early-distribution penalty if withdrawn while the owner is under the age of 59½. Reuired Minimum Dist. Owners are not subject to the RMD rules. However, beneficiaries are subject to the RMD rules IRA owners must begin distributing minimum amounts beginning April 1 of the year following the year they turn age 70½. Beneficiaries are also subject to the RMD rules. Conclusion For some taxpayers, their eligibility to deduct traditional IRA contributions is the main deciding factor in choosing between a Roth and traditional IRA. However, being eligible to deduct your contribution does not mean that the traditional IRA is your better choice. Consider whether the benefits of the Roth IRA – such as freedom from the RMD rules and taxes, and penalty-free distributions – outweigh the benefits of a deduction. The bottom line is You may contribute to a traditional IRA and elect not to claim the tax deduction even though you are eligible to do so. The benefit of not taking a deduction is that the distribution of the equivalent amount is tax and penalty free – like the distributions of the Roth IRA. The earnings distributed from the traditional IRA, however, will be treated as taxable income, whereas qualified distributions of earnings from a Roth IRA are tax free.
Finally, you may split your contribution between both types of IRAs and enjoy the benefits of both.

Related Questions

Navigate

• Browse (All)
• Browse R
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.