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Using Corporate Education Benefits and the Montgomery GI Bill



I love the GI Bill. It’s a great program, and one that I have used to help achieve my degree, as well as take additional courses. If you are eligible for GI Bill benefits, I highly recommend using them to help you achieve your personal, professional, or educational goals.

The Montgomery GI Bill can be especially valuable if your employer offers education benefits since the MGIB is paid to you, and not the school. I have a friend whose company paid for his MBA while he pocketed his MGIB benefits, earning over $1,300 a month in the process. His company didn’t have any policies against this, and neither did the GI Bill. What he did in this instance was both allowed, and ethical.

But some companies are tightening their purse strings, and removing this loophole in order to cut down on their expenses. And that brings us to today’s situation, which is a reader question we received.

Should You Use Employer Education Benefits or the GI Bill?

Q: I am currently employed by a company that offers educational assistance. Previously, we could use our Montgomery GI Bill and still receive this corporate benefit. Since the new GI Bill was introduced, they have updated the corporate policy to state that those using GI Bill benefits aren’t eligible. My question is, can they do that?

A: Great question. To be honest, I am not aware of any laws preventing a company from doing this, since companies provide educational benefits at their discretion. I don’t agree with it. I believe companies should treat all of their employees the same way and offer them the same benefits. On the other hand, I understand that educational benefits are a bonus and not a right, and companies often put limits on them. For example, they may limit tuition assistance benefits to certain degree programs or require the benefits only be used for a higher-level degree than you currently have.


So where does that leave you?

If you use the MGIB, the GI Bill benefits are sent directly to you. You may be tempted to double dip since there is no way for the company to know whether you are using the GI Bill. 

However, that’s dishonest, and it goes against company policy. It could be grounds for dismissal, and the company could make you repay the cost of the benefits you used.

I wouldn’t take the risk.

So you’ll have to decide which benefit to use. In some cases, you may receive more from the company benefits, especially if you are only going to school part-time and are only receiving partial MGIB benefits. Using your company benefits would also preserve your GI Bill to use when you exhaust your company benefits or leave your current job.


Other factors to consider are tax implications, employment obligations and GI Bill benefits expiration.

GI Bill benefits are not taxable, but employer education benefits may be. You can receive up to $5,250 in tax-free educational benefits from your employer. You must report any employer-sponsored tuition assistance above that amount as income, according to the Internal Revenue Service.

So you may consider using partial GI Bill benefits and partial employer tuition assistance if you can find a way to use both and stay within your company regulations. For example, while you may not use employer educational benefits at the same time as the GI Bill,  it may be possible to use employer benefits up to the taxable limit and then switch over.

Additionally, you may incur an employment obligation with your company if you use their tuition assistance benefits. So if you believe you may be ready to move on to a new company after you finish your current degree plan, you may wish to use your GI Bill instead, even if it offers slightly lower benefits overall.

Finally, keep in mind that the MGIB expires 10 years after you leave active-duty service. If you are approaching the expiration date for the MGIB, consider transferring to the Post-9/11 GI Bill, which gives you more time. If you separated from the military before Jan. 1, 2013, your Post-9/11 GI Bill benefits expire 15 years after you left active-duty service, and never expire if you separated on or after that date. You can get an MGIB refund under certain circumstances, but you will have to transfer to the Post-9/11 GI Bill and exhaust those benefits.

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Personal Finance

Our favorite Black Friday discounts in 2022



Academy Sports Veterans Day Deal

The Academy offers a discount to active duty military members, veterans, and first responders. It’s our way of showing gratitude and appreciation for all you do to protect our nation and serve our local communities. Get 10% off your entire purchase online or in store.

Bass Pro Shop Military Discount

5% off military and veterans every day, both in-store and online. Bass Pro Shops will be increasing their military discount to 10% on Veterans Day, 11/10 – 11/13. The verification process is available on the Bass Pro Shop website and by phone. The discount now also applies to firearms and ammunition purchases and can be combined with other sales and promotions for even greater savings. Further information.

Buffalo Wild Wings Veterans Day Deal

Throughout Veterans Day, Veterans and active duty military who dine at their local B-Dubs can receive a free order of boneless wings and a side of fries. Only in participating US locations.

Goodyear tyres

All active, former and retired military members and first responders are encouraged to take advantage of Goodyear’s free tire, brake and battery inspections and will receive an additional 10% off tires and services. Eligible guests presenting a valid ID can schedule car inspection appointments between November 10-14 and redeem through November 17.

Home Depot Military Discount

The 10% military discount is available daily for active duty and retirees, but not for all veterans. The Home Depot® makes this offer available to all veterans on major military holidays, including Memorial Day, Veterans Day and July 4th. Home Depot is offering all Active Duty, Reservist, Retired Military, Veterans, and their families (with ID) a 10% discount on their purchases in honor of Veteran’s Day. Certain restrictions may apply.


IHG hotels

With the holidays just around the corner, InterContinental Hotel Group is proud to offer a 5% discount to military personnel, veterans and their families. IHG is one of the largest hotel chains in the world, with more than 6,000 hotel properties from brands such as Holiday Inn, Candlewood Suites, Staybridge Suites, Hotel Indigo and others.

Lowe’s Military Discount

Lowe’s Companies, Inc. will offer all active, reserve, honorably discharged, retired military personnel and their immediate family a 10% discount on U.S. store purchases made during the Veterans Day holiday. The discount is available on stock purchases and special orders up to $5,000. To qualify, individuals must present valid military ID or other proof of service. Sales through, prior sales, and purchases of services or gift cards are excluded from the discount. Lowes offers this discount every day to military members and active duty veterans. – Find exclusive discounts

Microsoft military discount

The Microsoft Home Use Program allows current military members and Department of Defense workers to purchase Microsoft Office at a discounted rate. Please note that this offer is only available to current military members and those working for select companies and organizations participating in the Microsoft Home Use Program. Learn more about the Microsoft Office military discount.

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Personal Finance

Coverage, enrollment, and cost basics



Whether you’re on the reservations or in the National Guard, your Tricare health care options vary depending on your state.

When activated for more than 30 days, you’ll get the same free Tricare Prime coverage that applies to all active duty members. But what about the rest of the time?

You may already have an employer-based insurance plan, but what if you lose your job? If you don’t have a business plan, Tricare Reserve Select offers a good alternative to buying expensive health insurance on the open market.

Fortunately, with Tricare Reserve Select, members of select reserves have access to low-cost premium insurance. Here’s a guide to Tricare Reserve Select to help you determine if the program is right for your family.

  1. What is Tricare Reserve Select?
  2. Five things to know about Tricare Reserve Select
  3. Eligibility and costs
    1. Am I eligible for Tricare Reserve Select coverage?
    2. Tricare Reserve Select costs
  4. Membership basics
    1. First registration
    2. New subscription after activation
  5. Important Reserve of Tricare Select Resources
  6. Advantages and disadvantages
    1. Tricare Reserve Select: Benefits
    2. Tricare Reserve Select: Disadvantages
  7. Summary: Tricare Reserve Select is an easy and affordable health care option

What is Tricare Reserve Select?

Tricare Reserve Select is a premium health plan available to non-activated Reserves, National Guard members and their families.

You can use Tricare Reserve Select insurance anywhere in the world.


Tricare Reserve Select is similar to commercial health insurance in that it has copays, deductibles and premiums.

A unique feature of Tricare Reserve Select is that you don’t have to wait for Tricare’s open season to sign up or change your plan, according to the Tricare website. It is a premium plan, when activated for more than 30 days, you can easily switch your coverage to a Tricare Prime program, including Tricare Prime, Tricare Prime Remote, Tricare Prime Remote Overseas or Tricare Overseas. You can also transfer family members to a standard, remote or overseas Tricare Prime or Tricare Select, Tricare Young Adult, or US Family Health Plan.

Five things to know about Tricare Reserve Select

  1. Convenience: Compared to other comprehensive health plans on the open market, this is a low-cost option for Select Reserve members. Unlike many health insurance plansTricare Reserve Select also covers you when you are abroad.
  2. Based on Premium: Unlike other Tricare plans, you must proactively purchase Tricare Reserve Select. Members pay monthly premiums as well as an annual deductible and co-pays.
  3. Freedom of choice: You will not have to see a primary care manager (PCM) or need a referral for any health care with Tricare Reserve Select, according to the Tricare website. Choosing in-network providers will reduce your out-of-pocket costs.
  4. Qualifications: Tricare Reserve Select is only available to select reserve members who are not eligible for the Transition Care Management Program or the Federal Employee Health Benefits Program. You cannot join or stay in the plan if you are on active duty.
  5. Coverage gaps: To avoid coverage gaps when transitioning between active service orders and inactive status, call Tricare to verify your enrollment before using your insurance, if possible.

Eligibility and costs

Am I eligible for Tricare Reserve Select coverage?

If you are in Select Reserves and are not on active duty, you are eligible for Tricare Reserve Select.

You are not eligible for Tricare Reserve Select if:

  • You are eligible for the Transition Care Management (Service Members Leaving From Service) program.
  • You are concurrently a civilian employee and are eligible for the federal employee health benefits program.
  • You are a member of the Individual Ready Reserve (IRR), including Navy Volunteer Reserve (VTU) training units.

Retired reservists are not eligible for Tricare Reserve Select but can upgrade to Tricare Retired Reserve. Here are the health care options for retired reservists. Once retired reserve and National Guard members reach the age of 65, they will become Tricare for Life eligible.

Note: Compare costs and coverage options between Tricare Reserve Select and any employer-based option before making your final health care plan decision.

Tricare Reserve Select costs

As a premium-based health plan, the primary costs of Tricare Reserve Select are monthly premiums, an annual deductible, and co-payments for services covered by Tricare.


Premium monthly rates for 2023 are $48.47 for individual plans and $239.69 for family plans. Quarterly costs are $1,654 for individual plans and $4,134 for family plans.

Cost shares range from $16 to $68 for covered network outpatient services. For visits outside the network it is necessary to pay a fee of 20%.

There’s also an annual deductible, which varies depending on your degree. For those in the junior enlisted ranks (E1-E4), the 2022 deductible is $56 for an individual and $112 for a family, according to the Tricare Reserve Select cost tab. Service members who are E-5 and above have an individual deductible of $168 or a family deductible of $336.

Note: Although Tricare has announced 2023 premiums, it has yet to announce deductibles and cost allowances for Tricare Reserve Select 2023 as of mid-November 2022.

Membership basics

First registration

If eligible, you can purchase Tricare Reserve Select coverage by phone or on line to at any time of the year. Enrolling yourself or your family in any Tricare plan requires an up-to-date DEERS profile.


To obtain coverage, eligible service members will need to complete a Backup Component Medical Coverage Request Form, which you can complete here. You must also make a premium payment to the appropriate one Tricare Regional Contractor.

New subscription after activation

Once activated, Reservists and National Guard members become eligible for Tricare Prime. Family members can choose from Tricare Prime, Prime Remote, and Tricare Select. To see which is best for you, check out our article comparing Tricare Prime and Tricare Select.

When you deactivate, you re-enroll in Tricare Reserve Select. If not, you and your family may have a gap in health coverage. To re-register, follow the same registration steps listed above.

Important reserve of Tricare select resources

The regional contractors for Tricare Reserve Select are:

Advantages and disadvantages

With its low cost and worldwide accessibility, Tricare Reserve Select has clear advantages for many Select Reserve members.


Tricare Reserve Select: Benefits

  • Global coverage: This plan is available to eligible beneficiaries worldwide. Additionally, beneficiaries may seek medical care at military treatment facilities based on available space.
  • Freedom of choice: Beneficiaries can choose from any provider authorized by Tricare. Selecting in-network providers will reduce your out-of-pocket costs.
  • Unsolicited Referrals: While many health insurance options provide PCM referrals, they are not required to seek health care with Tricare Reserve Select.
  • Affordable support: This plan is more affordable than many comparable health care offerings in the civilian market.

Tricare Reserve Select: Disadvantages

  • Activation and deactivation headaches: You must call Tricare to enroll in Tricare Prime when you activate, then switch back to Tricare Reserve Select again when you deactivate. While this should be a seamless transition, problems or delays with your orders can create gaps in coverage.
  • Federal Employees: If you are simultaneously a federal employee and eligible for the Federal Employee Health Benefits Program, you cannot get Tricare Reserve Select. Federal employees who are otherwise eligible for Tricare Reserve Select will be able to purchase it starting January 1, 2030, according to recent legislation.

Summary: Tricare Reserve Select is an easy and affordable health care option

Tricare Reserve Select is a partially subsidized health care program that can save select reserve members money, compared to employer-based and market-based health care plans.

Your civilian employer may offer something better, but if not, consider Tricare Reserve Select for health coverage for you and your family.

This is Ryan Guina, the founder of Personal Finance speaking. Switching from Tricare Reserve Select to Prime and back usually goes smoothly, but not always. I once had an almost two month outage in coverage due to a problem with my orders when I went off active duty. The Tricare customer service representative I spoke with was understanding, and Tricare backdated one of my claims that occurred during this transition period. But it could have turned out differently if I hadn’t been paying attention. Track dates on your orders during transition periods. If possible, double check your enrollment status before using your insurance after changing status. If you have any issues, please call Tricare to report the issue and file a case as soon as possible.

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Personal Finance

2022 Roth IRA Rules – Why You Need a Roth IRA



Table of Contents
  1. Roth IRA – One of the Best Retirement Tools
  2. Types of IRAs and Why a Roth IRA Rules
    1. Here is a Primer on Traditional and Roth IRAs
  3. Roth IRA Eligibility Requirements
  4. 2023 Roth IRA Income Limits
    1. What to Do if Your Income Exceeds Roth IRA Contribution Limits
  5. Roth IRA Contribution Limit Rules
  6. Roth IRA Distribution Rules
    1. Exceptions for Early Roth IRA Withdrawals
  7. Roth IRA Conversions
    1. Deductible and Nondeductible Traditional IRAs
    2. Tax Implications of the Roth IRA Conversion Process
    3. The Pro-Rata Rule for Backdoor Roth IRAs
    4. Taking Advantage of Roth Conversions (Timing Is Everything)
    5. Who Is Eligible for Roth IRA Conversions?
    6. Options for Converting Traditional IRAs into Roth IRAs
  8. Comparing Roth IRAs to Other Retirement Plans
    1. Comparing Roth IRA to Traditional IRA
    2. Comparing Roth IRA to Traditional 401(k) Plans
    3. Where to Invest — 401(k) or IRA?
    4. Should You Contribute to a 401(k) Without an Employer Match?
    5. How Many Retirement Accounts Can You Have?
  9. Who Should Open a Roth IRA?
    1. Why Young People Should Open a Roth IRA
    2. Why Military Members Should Open a Roth IRA
  10. Getting Started With a Roth IRA
  11. How to Invest Your Roth IRA Funds
  12. Maximize Your Roth IRA Contributions
    1. Benefits of Automatic Contributions

Roth IRAs allow investments to grow tax-exempt until retirement and offer tax-free withdrawals. 

These tax-advantaged individual retirement accounts offer varied investment opportunities and exceptional tax benefits.

You contribute to a Roth IRA with money you already paid taxes on. The money compounds tax-free, and you can make tax-free withdrawals at age 59½. 

Additionally, there are no required minimum distributions (RMDs), meaning you don’t need to make withdrawals by a certain point. You can withdraw investments without paying additional taxes or defer withdrawals until you are ready.

Why You Need a Roth IRA
Roth IRA – one of the best retirement plans available

Everyone needs to plan for their retirement. Even if you serve in the military long enough to earn a pension, it might not be enough for your golden years. 

Retirement accounts such as the Thrift Savings Plan, 401(k) plans and IRAs are great ways to take your retirement planning into your own hands.

Types of IRAs and Why a Roth IRA Rules

Most people have two types of IRAs available to them – traditional IRAs and Roth IRAs. While similar, there are differences in paying taxes on contributions and withdrawals.


Here is a Primer on Traditional and Roth IRAs

  • Traditional IRA: Contributions are tax-free if you meet income requirements, and withdrawals are taxed in retirement years. There are required minimum distributions once you reach age 72.
  • Roth IRA: Contributions are made from already-taxed income, and withdrawals in retirement are tax-free. There are no required minimum distributions.

Let’s break this down in simple terms.

With a traditional IRA, you can take a tax break on your income now, but you will have to pay taxes when you withdraw retirement funds. You must also withdraw from your account once you reach the required minimum distribution age, regardless of your income needs.

With a Roth IRA, you make contributions from income that was already taxed, making you eligible for tax-free withdrawals in retirement.

This is a great deal, especially if you are in a lower tax bracket than you anticipate being in retirement. It also takes the guesswork out of retirement planning, since you know the money in your account is not taxable.. Finally, you aren’t required to take distributions, so you can leave money in your account and continue to let it grow. (This can also be advantageous for estate planning.)

Roth IRA Eligibility Requirements

There are two main Roth IRA eligibility requirements:

  • You must have earned income. 
  • You must meet income requirements.

The earned income must be taxable and can include wages and salaries, tips, bonuses and other compensation related to services you’ve provided. Income from interest, dividends or other investments does not qualify as earned income for Roth IRA purposes.

Note: Military members have a special provision. The Heroes Earned Retirement Opportunities (HERO) Act allows military members with tax-free combat pay to contribute to Roth IRAs and other retirement plans.


2023 Roth IRA Income Limits

There are caps on earnings and contributions to a Roth IRA. 

For the 2023 tax year, Roth IRA eligibility begins phasing out at an annual modified adjusted gross income (MAGI) of $138,000 for single tax filers. Single tax filers are ineligible to make Roth IRA contributions when their income reaches $153,000. The limits are higher for married filing jointly, with eligibility phasing out starting at $218,000 and ending at $228,000.

The following table breaks down Roth IRA income limits.

Filing Status Modified AGI Allowable Contribution
Married filing jointly or qualifying widow(er) $218,000 or less Up to the annual contribution limit
More than $218,000 but less than $228,000 Partial amount
$228,000 or more No contribution
Married filing separately and you lived with your spouse at any time during the year Less than $10,000 Reduced amount
$10,000 or more No contribution
Single, head of household or married filing separately and you did not live with your spouse at any time during the year $138,000 or less No contribution
More than $138,000 but less than $153,000 Partial contribution
$153,000 or more No contribution

What to Do if Your Income Exceeds Roth IRA Contribution Limits

The tax advantages for IRAs are generous, so the federal government limits them to people who fall within certain income brackets. Suppose you don’t meet income requirements to get the tax benefits from the traditional IRA or contribute directly to a Roth IRA. In that case, you can contribute to a nondeductible traditional IRA and convert it to a Roth IRA later. It’s like a back door that enables anyone to contribute to a Roth IRA, regardless of their MAGI.


More on this below.

Roth IRA Contribution Limit Rules

The next thing to consider is how much you can contribute to your Roth IRA. 

If you meet income requirements, then you can contribute up to $6,500 for 2023 if you are younger than age 50. 

If you’re age 50 or older you can contribute $7,500. (The additional $1,000 represents a catch-up contribution to help those closer to retirement better reach their investment goals.) 

Contribution limits for both Roth and traditional IRAs are the same, and the limits apply to all your IRAs for the specified tax year. Make sure you don’t exceed your contribution limits across both accounts.


The following chart shows IRA contribution limits for 2002-2023.

Tax Year Contribution Limit
Age 49 or Younger
Catch-Up Contribution
Limit Age 50 or Older
Contribution Limit
Age 50 or Older
2023 $6,500 $1,000 $7,500
2019 – 2022 $6,000 $1,000 $7,000
2013 – 2018 $5,500 $1,000 $6,500
2008 – 2012 $5,000 $1,000 $6,000
2006 – 2007 $4,000 $1,000 $5,000
2005 $4,000 $500 $4,500
2002 – 2004 $3,000 $500 $3,500

Roth IRA Distribution Rules

Distributions are among the main benefits of using a Roth IRA instead of a traditional IRA. Distributions from Roth IRAs are tax-free, whereas traditional IRA distributions are taxable. In addition, there is no required minimum distribution age with a Roth IRA.

While you can withdraw contributions at any time, tax-free and penalty-free, that does not apply to earnings or interest on your contributions.

To avoid paying penalties on Roth IRA withdrawals for earnings or interest, you must wait at least five years from the date you contributed the funds and be at least 59½ years old.


This is called the five-year rule.

Exceptions for Early Roth IRA Withdrawals

There are exceptions to the Roth IRA withdrawal rules in certain situations. For example, you may be able to make penalty-free withdrawals if you become disabled, want to purchase your first home or pay for qualified educational expenses. 

Read more about Roth IRA withdrawal rules and consult with a financial planner or tax professional before making any early Roth IRA withdrawals.

Early Roth IRA withdrawals not qualified under Internal Revenue Service (IRS) rules may be subject to a 10% early withdrawal penalty.

Roth IRA Conversions

Moving money from a traditional IRA into a Roth IRA is called a Roth IRA conversion. 


Many people choose to do Roth IRA conversions because Roth IRAs have tax advantages over traditional IRAs. Roth IRA distributions are not considered taxable income. The lack of required minimum distributions also gives Roth investors more long-term flexibility.

Deductible and Nondeductible Traditional IRAs

There are two types of conversions: conversions from deductible traditional IRAs and conversions from nondeductible traditional IRAs.

Deductible IRAs are those where you deduct the contribution on your taxes.

Nondeductible IRAs are those without a corresponding tax deduction. People whose income exceeds the traditional IRA and Roth IRA income limits may use these.

Tax Implications of the Roth IRA Conversion Process

During the conversion process, you add the money from a traditional IRA that you rolled into a Roth IRA to your annual taxable income for that year. It’s taxable income because you did not pay taxes on contributions or earnings. The IRS still needs to assess taxes on that income and its gains. So, you pay when you convert and file your taxes the following year.


Nondeductible IRA conversions are not taxable income, as you did not receive a tax deduction for the original contribution. However, you will pay taxes on any nondeductible IRA gains when you convert to the Roth IRA.

To avoid taxable gains, convert a nondeductible IRA to a Roth IRA as soon as possible after opening it. This is called a backdoor Roth IRA.

The Pro-Rata Rule for Backdoor Roth IRAs

The IRS requires taxpayers who convert traditional IRAs to Roth IRAs to convert them on a pro-rata basis. That means that if you also have deductible IRAs, you can’t only convert your nondeductible IRAs to a Roth IRA. You must convert them proportionately, based on the total value of all your IRAs. This way, the IRS receives taxes at the time of conversion. IRS Form 8606 will walk you through the math.

This is an advanced matter worth investigating with a tax professional or fee-only financial planner.



Taking Advantage of Roth Conversions (Timing Is Everything)

When you pay taxes on the money you roll over, you pay taxes on the current value of the money. That means you can take advantage of economic downturns or your current tax bracket.

Future distributions from newly created Roth IRAs are the same as any other Roth IRA – they are nontaxable.

Investors currently in a low tax bracket often invest in Roth IRAs because they expect to be in a higher tax bracket when they retire. This is common for those who have recently retired or are between jobs.

Many people convert a traditional IRA into a Roth IRA when the economy struggles because their traditional IRA has less value, resulting in a lower taxable amount.

Who Is Eligible for Roth IRA Conversions?

Most people are eligible to convert a traditional IRA into a Roth IRA. However, you cannot convert a traditional IRA if you inherited it from someone other than a spouse.You can convert traditional IRAs to Roth IRAs even if you have made a rollover within the same year, according to the IRS.


Options for Converting Traditional IRAs into Roth IRAs

There are two ways to move money from a traditional IRA into a Roth IRA.

  • You can convert the funds yourself by taking a distribution from the traditional IRA and rolling it into a Roth IRA within 60 days.
  • You can instruct the bank or broker who manages your traditional IRA to transfer the money into a Roth IRA for you.

Most investment firms are happy to initiate and process the Roth conversion or rollover for you. This is typically the easiest and safest method since you avoid potential mistakes or penalties.

For example, if you cash out your IRA without rolling the IRA funds into your new IRA within 60 days, it is treated as a withdrawal instead of a conversion. Also, you would owe taxes on the total amount plus penalties if you are younger than 59½.

Whether you roll over or transfer funds, it’s necessary to use the entire traditional IRA distribution amount to fund the Roth IRA to avoid early withdrawal penalties and fees. You cannot keep any of the money as cash.

Comparing Roth IRAs to Other Retirement Plans

Roth IRAs offer different benefits than other retirement plans or taxable investments. The most important benefits of investing with a Roth IRA are:

  • Tax-free withdrawals during retirement
  • No required minimum distributions, so you can let your money compound for longer periods
  • Ability to make tax-free and penalty-free withdrawals of your contributions at any time

Comparing Roth IRA to Traditional IRA

There are several similarities between traditional and Roth IRAs, including where you can open them and often the contribution limits. There are also income limits for tax-deductible traditional IRAs and Roth IRA contributions, so be sure to read up on the IRA contribution limits page for more information.

There are also differences between these two retirement accounts.


The fundamental differences between traditional and Roth IRAs boil down to how and when the money is taxed and how and when you can make withdrawals.

Traditional IRA contributions may be tax deductible, and the funds are taxed when you make a withdrawal. Roth IRA contributions have already been taxed, and withdrawals and qualified distributions are tax-free.

The next major difference is how and when you make withdrawals. Traditional and Roth IRAs list age 59½ as the minimum age requirement for penalty-free withdrawals. You can also make qualified distributions on your earnings penalty-free and tax free at this age as long as your Roth IRA has been open for at least five years.

However, traditional IRAs require account holders to make minimum required distributions once they reach age 72. Otherwise, they face stiff tax penalties.

Roth IRAs do not have required minimum distributions. You can read more about these two plans in the article: Comparing Roth IRA vs. Traditional IRA.

Comparing Roth IRA to Traditional 401(k) Plans

Some companies offer traditional 401(k) plans and Roth 401(k) plans. The Roth 401(k) has similar benefits to a Roth IRA but follows the contribution limits for 401(k) plans. Traditional 401(k) plans are closer to traditional IRAs, as they offer a current tax deduction, with taxable withdrawals in retirement age. All 401(k) plans also have a required minimum distribution age. Unlike a Roth IRA, the Roth 401(k) requires participants to take required minimum distributions once they reach the required age.


Where to Invest — 401(k) or IRA?

People often ask where to invest first – 401(k) or IRA. A traditional 401(k) plan is usually better if your employer offers a company match on your investment.

Take the free money, then contribute to the Roth IRA if you can afford to contribute beyond that.

How Many Retirement Accounts Can You Have?

You can have several retirement accounts, including a 401(k), 403(b), Thrift Savings Plan or IRA. You may also have a self-employed retirement plan.

However, the IRS lumps IRAs and retirement plan accounts together. So be careful to stay within annual contribution limits for IRAs and other retirement plans.

Who Should Open a Roth IRA?

A Roth IRA is a great investment option if you’re in a lower tax bracket now than you expect for the future. 


You can pay taxes at a lower tax rate, then make tax-free withdrawals when you reach retirement age.

Why Young People Should Open a Roth IRA

Income potential in most career fields grows over time, so young people who start their careers in a low tax bracket have the most to gain from opening a Roth IRA.

Why Military Members Should Open a Roth IRA

Military members can make tax-free Roth contributions in a war zone, then make tax-free withdrawals in retirement. 

This means your contributions, growth and withdrawals are all tax-free.

Some military members may qualify for additional time to contribute to their Roth IRA beyond the normal cutoff date if their military duties permit a tax extension. 


Military Members Should Open Roth IRAs.

Getting Started With a Roth IRA

Opening a Roth IRA is easy and takes only 10-15 minutes. Simply go to the bank or brokerage company you wish to do business with, fill out some paperwork and initiate a money transfer.

If you want to read more on Roth  IRAs first, check out these articles:

How to Invest Your Roth IRA Funds

How you invest your money is a personal decision. Consider your other current investments, desired asset allocation, investment timeline and risk tolerance.

That said, some investments are best suited for a Roth IRA in the context of your overall investment portfolio. Because of the Roth IRA’s unique tax rules, you won’t pay taxes on any growth in the funds in your Roth IRA. Look for funds that maximize your growth potential in your Roth IRA.


Conversely, consider investing in funds with lower growth potential in your traditional retirement accounts because you will pay taxes on those funds when you withdraw them at retirement age.

That generally means placing equities (stocks) in a Roth account and bonds and fixed income in a traditional account. This isn’t a hard-and-fast rule, and you may have to adjust as your portfolio grows. But, thinking about the long-term growth of the funds in your retirement accounts is very important.

Maximize Your Roth IRA Contributions

The 2023 maximum contribution limit for a Roth IRA is $6,500 per year or $7,500 for those older than 50.

Most people can’t contribute $6,500 at once, which is OK. A great way to invest is to set up automatic investments in your Roth IRA account.

Determine how much you can afford each month and automatically contribute that amount. If you want to max out your Roth IRA contributions each year, you must contribute about $541 per month ($625 if you are older than 50).


Benefits of Automatic Contributions

Making automatic contributions guarantees you’ll stick to your monthly IRA savings goals. 

You can also take advantage of dollar cost averaging, which ensures you will buy more investments when values are low, and fewer when values are high. Hopefully, your investment growth will average out in your favor in the long run. 

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