With hassle-free rollovers, self-directed investing and Low Management fees, a Traditional IRA, Roth IRA, Rollover or SEP IRA is a simple way to build a solid financial base for your retirement dreams. Understanding the differences between each IRA type is important when choosing one for your investment needs. Each IRA has its own unique advantages and guidelines regarding withdrawals, contributions, taxes and rollovers.
Because Traditional and Roth IRAs are the most common account types, here is more in-depth look at their key differences.
One of the biggest differences between Traditional IRAs and Roth IRAs is in the tax benefits. With a Traditional IRA, your contributions may be tax-deductible. This means your overall tax bill can be decreased with your current income. On the other hand, when money from that Traditional IRA is withdrawn, that money is subject to normal taxation. A Roth IRA features no up-front tax deduction for your contribution. Roth IRA contributions are made with “after-tax” dollars, which means that your Roth IRA contributions have already been taxed with your income. Therefore, you can make a withdrawal of your contribution dollars at any time, generally tax-free.
Overall, a Traditional IRA puts more money in your pocket from your paycheck, while a Roth IRA provides more control over withdrawals from your IRA. Both are intelligent IRA choices, and we encourage you to take an in-depth look at their differences, ensuring you select the IRA that best matches your investment planning strategy.