Withdrawal Rules of Roth and Traditional IRAs

Those individuals who have an Individual Retirement Account must know the current IRA rules for 2012 so they would enjoy the maximum benefits from such IRA. An IRA is a kind of investment vehicle which is designed for the retirement of employed individuals. This investment vehicle can hold several types of investments, which is really good when it comes to diversification of funds. And this is the best way to make a better investment portfolio.

Opening an IRA is a wise thing to do when it comes to investing for our retirement. This is the reason why we need to make sure that we are familiar with the rules and regulations that govern the type of IRA plan that we own so we will be able to know how to maximize our benefits from our investments. There are two major and popular types of IRA plans that most employed individuals prefer to open, and these are the Traditional IRA and Roth IRA. These two are different from each other when it comes to paying the taxes.

The contributions to a Roth IRA are taxed right at the time these are made, and so there is a big possibility for the account holders to enjoy tax-free profits from their investments. And if the account holders of Roth IRA meet the parameters, then they will be able to enjoy tax-free distributions in the future. It is required for the account holders to be at least 59 and 1/2 years of age by the time of withdrawal, so to avoid paying taxes and penalties. However, there are some considerations which may allow them to take a limited amount of tax-free withdrawal; and this includes buying a first home, enrolling for a higher education, and physical disability, or even death.

With a Traditional IRA, we do not pay taxes upon contribution, but we pay such taxes when we withdraw our funds. The same age of 59 and 1/2 applies for qualified withdrawals, else the withdrawals will be charged an early withdrawal penalties. With Traditional IRA, there is a minimum required distribution which is mandatory at the age of 70 and 1/2.