Traditional IRAs v Roth IRAs

Traditional IRA versus Roth IRA

 

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Traditional IRA:

Traditional investment accounts refer to the tax advantages associated with your account. When you have a traditional contribution plan, IRA, or Thrift Savings Plan(TSP), you contribute pre-tax dollars from your paycheck when you have a conventional plan. Additionally, this could lower your taxable income and count as a deduction. However, you must pay taxes when you withdraw from your retirement plan in the future, and there are penalties when withdrawing from a traditional IRA before you reach (59.5 as of 2024). 

Roth IRA: 

A Roth investment account is slightly different but has pros and cons. A Roth has to be contributed to after-tax dollars, so after your paycheck hits your account. Therefore, you're still taxed on all your income. However, you can withdraw without paying taxes when you reach retirement age (59.5 as of 2024).  A feature of Roths is that whatever money you contribute can be withdrawn with no penalty or age requirement 

 

Both types of accounts have advantages and disadvantages, but it's important to choose what's most important to you. You can learn more by visiting the "How to Money" link above.  

 

In the next chapter, we'll explore the different types of accounts that you could be eligible for.

Next Chapter: 

What are Common Retirement Plans?

All Chapters:

[Chapter 1]: Traditional v Roth

[Chapter 2]: What are Common Retirement Plans?

[Chapter 3]: How Can I Make a Retirement Guide?

[Chapter 4]: What are Some Common Mistakes?

[Chapter 5]: What is a Retirement Budget?