5 Common Roth IRA Questions

What is the Difference Between A Roth IRA and IRA?

The standard IRA is considered to be the Traditional IRA, which was the first IRA ever established. Both of them have certain advantages and disadvantages, but Roth IRAs are typically preferred now. The main difference is seen in the tax structure. A Roth IRA requires you to pay tax up front, which seems bad, but then you don’t pay any taxes on earnings or withdrawals later on. On the other hand you can usually defer taxes with a Traditional IRA, but you have to pay income taxes later on when you withdraw the money.

What is the Difference Between A 401k and Roth IRA?

One of the most common issues is whether or not to contribute to a work sponsored 401k or to a personal Roth IRA. 401ks are an investment vehicle just like Roth IRAs but typically have larger limits so you can contribute more. Unfortunately they are usually stricter too and don’t offer the same benefits as Roth IRAs. The best plan for most people is to deposit whatever your employer will match into your 401k, then max out your Roth IRA, and if you still have something left you can put it in your 401k.

Can You Do A 401k conversion to Roth IRA?

Of course! And it’s a great idea too in many cases. Unfortunately you can’t just do a conversion whenever you want. If you leave a job for whatever reason, THEN you have the option to either roll it over to a new employer’s plan or to convert it to a Roth IRA or Traditional IRA.

How Many Roth IRAs can you Have?

There is no limit on how many Roth IRAs or IRAs in general that you can have. You could have one with every financial institution if you wanted to. However, what there is a limit on is how much you can contribute TOTAL every year to the IRAs; this includes all types of IRAs, Roth or Traditional.

How Much can you put in a Roth IRA?

To continue on from the last question, there is a total contribution that you are allowed to contribute to your IRAs every year. How much you are allowed to put in a Roth IRA will depend on the Roth IRA Contribution limits for the year.