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 72 | 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.