The Pros and Cons Of IRA’s

An Individual Retirement Account (IRA) is a great retirement savings tool for most individuals. Created by the federal government, IRAs can be funded during your working years.  During retirement, IRAs may help supplement your Social Security benefits. Your retirement savings can begin with your annual IRA contribution.

If you are under age 50, the current maximum annual contribution amount is $5,000.  For those 50 years and older, an additional $1,000 can be contributed. If turning 50 this year, you are now eligible to contribute $6,000. The contribution amounts are adjusted for inflation each year by the federal government.

IRAs come in two types: Traditional and Roth. To determine which one is best suited for your annual contribution, here are some key factors to consider:

Advantages to a Traditional Deductible IRA:

  • Tax Deductible: Your contribution is deductible on your federal income tax return for the year in which you contribute.
  • Tax-Deferred Growth: Your contribution grows tax deferred until you withdraw the money. This means you do not pay any taxes while your money is growing.

Limitations to a Traditional Deductible IRA:

  • Adjusted Gross Income (AGI) Limitations: The amount you can deduct is limited based on your AGI and if you participate in your employer sponsored retirement plans. Your contribution may be fully deducted on your income taxes, partially deducted or not deductible at all.
  • 10% Penalty: The 10% penalty is used to encourage IRA owners to keep their money in their IRA until reaching age 59 ½. If you withdraw any of your money prior to age 59 ½, then you will incur a 10% penalty on your withdrawal amount. There are some exceptions to the rule: educational expenses, first time home purchase and certain medical expenses.

Advantages to a Roth IRA:

  • Avoid Taxes in the Future: Roth IRAs grow tax free. Therefore no taxes are due when you withdraw your money.
  • No Required Minimum Distributions (RMD): Roth IRAs do not require RMDs after age 70 ½, so your money can continue to grow with the potential for larger dollar amounts to leave to heirs.

Limitations to a Roth IRA:

  • Adjusted Gross Income (AGI) Limitations: For high wage earners (single filing over $120,000 and married filing jointly over $177,000), Roth contributions are not allowed.
  • Disqualified Distributions: The earnings in your Roth must remain in the account for 5 years (known as the 5 year clock) and until you reach 59 ½ years old. A 10% penalty will be applied on earning distributions that do not meet these requirements.

Always consult a financial planner or IRS publication 590 before you make your final IRA decision. Making the correct IRA choice now can benefit you down the road in your retirement.

Kimberly J. Howard, CFP® is a Certified Financial Planner and the owner of KJH Financial Services, a Fee-Only practice located in Needham, MA (781-413-4879). Please visit us at or email Kim at

About the author

Kimberly J. Howard, CFP®, CRPC®, ADPA®

Kimberly J. Howard, CFP®, CRPC®, ADPA® is the founder and owner of KJH Financial Services in Newton MA and Denver CO. She enjoys helping clients explore and achieve their life goals through effective comprehensive financial planning.

Kimberly holds a Master of Science degree in Computer Science Information Management from Boston University. She earned a Bachelor of Science degree in Mathematics and Physical Education from Stephen F. Austin University in Texas. She attended Boston University for her Certification in Financial Planning and H&R Block for Tax Preparation Certification.

Kimberly is currently an adjunct faculty member at MetroState University where she teaches General Financial Planning Principles, Income Tax, Retirement Planning and Estate Planning. She is a past adjunct faculty member at Boston University and The College for Financial Planning.

Kimberly is a member of the Financial Planning Association (FPA) and The National Association of Personal Financial Advisors (NAPFA). She was named to the Metropolitan Who's Who Among Executive and Professional Women. She is an expert Advisor for Nerdwallet, BrightScope, Morningstar, and FiGuide.

Kimberly promotes a life planning approach with a balanced work/life style. She is active in sports including cycling, golf, skiing, and hiking.

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