Roth IRAs and traditional IRAs are two popular retirement savings accounts available to individuals. Both offer significant tax advantages, but they differ in many ways.
A traditional IRA allows you to make contributions with pre-tax dollars, which lowers your taxable income. The money invested grows tax-deferred until withdrawal during retirement when it is taxed as ordinary income. On the other hand, a Roth IRA allows you to contribute after-tax dollars. While there is no immediate tax benefit, all withdrawals (including earnings) are tax-free provided certain requirements are met.
One key difference between Roth and traditional IRAs is when taxes are paid on the money invested. With a traditional IRA, taxes will be due at the time of withdrawal while with a Roth IRA the taxes have already been paid upfront through contributions.
Another important consideration between these two types of accounts has to do with eligibility requirements; anyone can open a traditional IRA account regardless of their annual income level or marital status whereas not everyone may qualify for opening a Roth IRA account because there are strict limitations based on annual income levels and filing status.
Choosing between a Roth or Traditional IRA depends on individual circumstances such as age, current financial situation, anticipated future expenses etc., so it’s best to consult with an experienced financial advisor before making any decisions about which type of account is right for you.