Let’s explore some of the differences between a traditional IRA and a Roth IRA.
With a traditional IRA, your contributions may be tax-deductible and can grow tax-deferred. In retirement, traditional IRA distributions are taxable as ordinary income. With a Roth IRA, your contributions are non-deductible, but have the opportunity to grow tax free. At retirement age, distributions from a Roth IRA are tax free.
Here is a list of some of the primary differences:
|Traditional IRA||Roth IRA|
|Tax Treatment of Contributions:||Tax-deductible||Non-deductible|
|Tax Treatment of Distributions:||Taxable as ordinary income||Tax free|
|Mandatory Distributions:||Mandatory at age 70.5||No mandatory distributions|
|Early Withdrawal Penalty:||10% on entire amount||10% only on earnings|
Although the above table highlights some of the major differences between a traditional IRA and a Roth IRA, there are a number of other nuances not reflected. Please feel free to contact us to discuss which makes the most sense for your financial situation.