A Roth IRA and a traditional IRA differ primarily in when you pay taxes. A Roth IRA uses after-tax contributions and offers tax-free qualified withdrawals, while a traditional IRA may offer a tax deduction now but taxes withdrawals in retirement.
Roth IRA
- Contributions are made with after-tax dollars.
- Qualified retirement withdrawals are tax-free.
- Required minimum distributions do not apply during the original owner’s lifetime.
- Income limits may affect eligibility.
Traditional IRA
- Contributions may be tax-deductible.
- Earnings grow tax-deferred.
- Withdrawals in retirement are generally taxed as ordinary income.
- Required minimum distributions generally begin at age 73.
Additional Information
EveryDollar generally recommends prioritizing an employer match first, then a Roth IRA, followed by a traditional IRA.
Match beats Roth beats Traditional. Always capture free employer match money first (like through a company 401k), then fill up that Roth IRA.
Next Steps
If you are ready to begin investing, connect with a SmartVestor Pro in your area to discuss your retirement goals.