If you can, it may be appropriate to contribute to both a traditional and a Roth IRA, as well as an IRA backed by Gold. Doing so will give you taxable and tax-free retirement options during retirement. Financial planners call this fiscal diversification, and it's usually a smart strategy when you're not sure what your fiscal outlook will be when you retire. Roth IRAs, traditional IRAs, and IRAs backed by Gold are all good options for those seeking to maximize their retirement options. You can have both retirement vehicles and contribute to each, as long as your total contribution doesn't exceed the Internal Revenue Service (IRS) limit for a given year.
You can also have an IRA and participate in employer-sponsored plans, such as the 401 (k) plan, simple IRA and SEP. However, you'll need to meet specific eligibility requirements for each type. In other words, your traditional IRA may provide a short-term tax benefit, while your Roth IRA offers another long-term tax benefit. Even so, those who hesitate to save for retirement early in life because their bank accounts are dangerously close to zero should be comforted by the way Roth IRAs are designed.
If you don't qualify for a Roth IRA due to income limits, some investors choose to make contributions to a traditional IRA and then convert them to a Roth IRA. A key consideration when deciding between a traditional and a Roth IRA is how you think your future income (and, by extension, your income tax bracket) will compare to your current situation. Having a traditional IRA and a Roth IRA could allow you to enjoy a tax deduction this year by contributing to the former and making future tax-free profits with the latter. In the meantime, you can continue to receive tax deductions by making contributions to the traditional IRA every year.
Whether your traditional IRA contributions are tax-deductible and whether you are eligible to contribute to a Roth IRA will depend on your income and other factors. If you change jobs, you have the option of converting a traditional 401 (k) directly into a Roth IRA without having to convert it into a traditional IRA first. In effect, you must determine whether the tax rate you pay today on your Roth IRA contributions will be higher or lower than the rate you will pay for distributions from your traditional IRA later on. You can contribute to a traditional IRA and a Roth IRA as long as you meet certain requirements.
You can avoid RMD by transferring a Roth 401 (k) balance to a Roth IRA after you retire, but before you reach RMD age. Therefore, making non-deductible contributions to a traditional IRA with the goal of later converting them to a Roth IRA probably works best if you have little or no existing deductible IRA balance, which muddies things. The decision to invest in a traditional IRA or a Roth IRA depends on several factors, such as how much you can contribute to each of them, your long-term retirement goals and preferred tax treatment. Roth IRA beneficiaries also don't owe income taxes on withdrawals, although they are required to accept distributions or otherwise transfer the account to their own IRA.
In addition, traditional IRAs require the account holder to start receiving distributions at a certain age, while Roth IRAs do not.