April 2016 Newsletter

IRA: Traditional or Roth?
Make Your Life Better with f.lux

IRA: Traditional or Roth?
Sandy Gallemore

Do you contribute to an IRA, Individual Retirement Arrangement? If so, is it a Traditional IRA account or a Roth IRA account? Do you know the differences between the two? Do you know the advantages and disadvantages of the two?

The traditional IRA was established by the Employee Retirement Income Security Act (ERISA) of 1974. IRAs are held at a custodial institution (bank, insurance company, brokerage). Holders of the IRA may invest in anything the custodian allows, including certificates of deposit, stocks, and mutual funds. Only individuals with earned income may contribute to an IRA.

The main difference between the two types of IRAs relates to when you pay taxes on your contributions.

Contributions to a Traditional IRA are made with dollars not yet taxed. Such contributions, along with interest, dividends, and capital gains, incur no tax while remaining in the IRA account. However, when withdrawals are made from the account, taxes are subject to federal income tax (and perhaps also subject to state income tax).

Contributions to a Roth IRA are made with dollars already taxed. Therefore, withdrawals from the Roth IRA are not taxed again, and capital gains, dividends, and interest incur no tax liability. You pay tax on your earned income prior to investing in the Roth IRA.

In other words, when investing in a Traditional IRA, the investor avoids taxes when the money is put into the account, and when investing in a Roth IRA, the investor avoids taxes when the money is taken out of the account. We cannot avoid the taxes, but we have the option of choosing when we pay those taxes.

Required Minimum Distributions (RMDs) are required when the IRA is a Traditional IRA. These may begin at age 59-1/2 and must begin at age 70-1/2. Roth IRA monies may remain in the account indefinitely and never need to be withdrawn.

Anyone with earned income may invest in an IRA, but if the IRA is a Traditional IRA, the individual must be below age 70-1/2. The maximum contribution, which generally changes each year, is the same for each type of IRA. The Roth IRA does have an income limit for contributors; the Traditional IRA does not have such an income maximum, but does have other rules. Check out the IRS website for more information about IRAs and federal taxes.

The main advantage of contributing to any tax-deferred savings plan, including a Traditional IRA, is that the amount of money you have available to invest is larger than it might be in the case of after-tax investing, such as in a Roth IRA. While many people like the reduction in taxes in the year of contribution, this is not necessarily a benefit when looking long term. Taxes on the Traditional IRA eventually will need to be paid. The thinking is that the investor will be in a lower tax bracket at the time of withdrawal. This may or may not be the case.

All withdrawals from a Traditional IRA will be subject to federal income tax, since no tax was paid on those dollars prior to the contributions. Since these taxes must be paid, along with any applicable penalties for early withdrawal, using Traditional IRA monies for emergencies is difficult. On the other hand, monies contributed to a Roth IRA have been taxed. Any of the principal (but not the earnings) may be withdrawn early without penalty. IRS Publication 590 includes rules for such withdrawals.

Owners of a Traditional IRA have the option to convert all or part of that account to a Roth IRA. However, owners of a Roth IRA may not convert that account to a Traditional IRA. Moving money from a Traditional IRA to a Roth IRA is a taxable event. The account owner will pay taxes on any money moved from a Traditional IRA to a Roth IRA, so many people wanting to move money into a Roth IRA will move small amounts each year for a number of years, so that the taxes owed will be spread over a period of time and will have limited impact on taxes owed each year.

Many brokerage houses and mutual fund companies have guides to IRAs. For example, a quick comparison is available at Fidelity. Likewise, Vanguard also includes a guide to help investors learn more about Traditional and Roth IRAs. Scottrade includes information about IRAs and retirement investing, as does TD Ameritrade. Other custodial institutions also have information and guides related to retirement investing. In addition, websites such as Bankrate include helpful information about IRAs and retirement investing.

Sandy is an InvestEd Inc. director and serves as vice president for education. She is lead editor and prepares the general program brochure for the conference. Sandy has helped form investment clubs, presented introductory investing programs, and taught stock study and mutual fund classes at local, regional, and national events. In her leisure time she participates in a line dance group, plays handbells, bridge, and golf, and enjoys a variety of other activities, including investing. Sandy is professor emeritus of kinesiology, Georgia Southern University.

Make Your Life Better with f.lux
Michael Aiken

For better or for worse, screens are forever a part of our lives. Computer or television, tablet or smartphone, the glow from our electronic devices is inescapable.

Unfortunately, research suggests that exposure to blue light emitted by our electronic devices before bedtime may distort our natural circadian rhythm and impede our ability to fall asleep. In short, blue light prevents the release of melatonin, the hormone responsible for regulating day-night cycles, according to an article in the Washington Post.

Incandescent light bulbs were popularized over a century ago. We need to remember, though, that this light is unnatural light. 
 We cannot do much about most lighting we use, but for our electronic bluish lights, a solution is available that allows us to check email safely before bedtime. An application called f.lux regulates our computer's display by adapting to the time of day (warm at night and sunny during the day).

All we need to do is download f.lux, set it up, and forget it. Once set up, we will see our screen warming and dimming as the sun goes down. We might think of this as mood lighting for our computer as it matches our indoor lights at night and saves us some sleep hours. That's reason enough for me to see the world through rose-colored glasses (at least, to see my email through a rose-tinted screen).

This download page includes links not only for Windows, but also download links for Mac, Linux, and iPhone/iPad. An Android app is available in the Google Play Store.

After clicking on Settings, the user may change the location by entering a ZIP code and may change the transition speed from fast (default) to slow. More information about set up is at the bottom of the News page link.

A Forum is available for users. It includes information and help for Windows, Mac OS X, iOS, Linux, Android, and more.

The Research tab includes a significant amount of research about sleep and lighting. The extensive FAQ tab provides support and assistance.


Take a look at f.lux and see if you might like to include it on your electronic devices.

A 2014 graduate of The College of William and Mary, Michael studied government and process management, earning a yellow belt in Lean/Six Sigma. With experience at the federal level in budget planning, program performance, and process improvement efforts, Michael specializes in conducting complex analyses, forecasting, and creating dashboards within Microsoft Excel and Tableau. He is passionate about sharing knowledge, particularly about time-saving techniques. Before joining the Grant Thornton team, Michael was a contributing author for the Diplomatic Courier, an international affairs magazine.

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