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Is there no penalty for ROTH because you did not receive any tax benefits when contributing funds?
There is no penalty because the tax code is written that way. Trying to understand why it is written a particular way is a fruitless exercise which can lead to banging one's head on a wall; don't go down that road.
Did you notice the comment above about deducting traditional IRA contributions when you have a workplace plan available? For a single person, for 2015 the deduction began phasing out at 61k MAGI and was not allowed at all at 71k MAGI.
If you cannot deduct your traditional IRA contribution, definitely opt for the Roth.
Is there no penalty for ROTH because you did not receive any tax benefits when contributing funds?
That's the idea, yes. But since you didn't pay any taxes on the gains made, you WILL owe taxes on those IF you withdraw any gains made prior to age 59 1/2.
I understand that an IRA is not an account per-se, but more of a tax wrapper. I'm wanting to lower my AGI to make my student loan payments lower (My retirement contributions are already maxed out and I'm already contributing to a HSA). Having a Traditional IRA would accomplish this.
My goal would be to put $300-450 per month in the IRA to max out the $5500 annual limit. I would fund the account monthly from my checking account after I am paid from my employer. Am I correct in that the employer does not have to fund the account to take advantage of tax benefits and that funding the IRA from post-tax funds is okay?
However, I am confused at how an IRA is set up. Is it more like a savings/checking account where you can deposit funds to the account at any time? Or is it more like a CD where you have to fund the account one time and there is no opportunity for funding the account at a later date? With Ally, they have an IRA savings account. It seems like that might be the best option for my situation.
First you need to check to make sure your MAGI qualifies you for the tax deduction. You pay in after tax and get to deduct it at the end of the year. My IRAs are with brokerage accounts, although most big banks today have brokerage arms, so a bank would likely be fine. You don't have to actually invest the money, just put it in the account. You could keep it in cash in the IRA if you would like.
This is quite interesting... If I lower my income by $5500 (by maxing out the IRA limit), my student loan payment only drops by $40/mo. Also, the more student loan interest I pay, the lower my AGI is for the following year.
Based on this information, I think a ROTH IRA would be the better option for me.
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