he Key Differences Between a Roth and Traditional IRA
Tax deductions: You get tax breaks with either option, but there’s a pretty big difference in when these occur.
With a traditional IRA, you’re allowed to deduct your yearly contribution (in most cases) off your taxable income each year, lowering your tax bill in the current year. When you withdraw money from a traditional IRA later in life, it will be taxed as ordinary income, like any other investment.
You contribute after-tax dollars to a Roth IRA, so it won’t have an impact on your current-year tax return. It does hold a major tax advantage in the long run, however, especially if your account makes money. With a Roth IRA, you don’t have to pay income tax when you withdraw the money from your account at retirement.
Tax deductions: You get tax breaks with either option, but there’s a pretty big difference in when these occur.
With a traditional IRA, you’re allowed to deduct your yearly contribution (in most cases) off your taxable income each year, lowering your tax bill in the current year. When you withdraw money from a traditional IRA later in life, it will be taxed as ordinary income, like any other investment.
You contribute after-tax dollars to a Roth IRA, so it won’t have an impact on your current-year tax return. It does hold a major tax advantage in the long run, however, especially if your account makes money. With a Roth IRA, you don’t have to pay income tax when you withdraw the money from your account at retirement.
