Are you ready to invest in your financial future? If you are weighing the options for your retirement accounts, you may be wondering what the best options are for you. While there are many retirement options available, we will be giving an overview of the two most common IRA investment options: traditional and Roth. We will also explain the difference between a Traditional IRA vs Roth IRA.
Before we dive in, it is important to note that talking with a financial advisor is key to your future financial success.
Traditional IRA vs Roth IRA – What is the Difference?
A Traditional IRA is an individual retirement account using pre-tax dollars, otherwise known as tax-deferred contributions. With a Traditional IRA, taxation occurs at deduction (age 59½).
A Roth IRA is an individual retirement account using after-tax contributions. At retirement, you can deduct from your IRA tax-free, because it was already taxed up front.
Which IRA Should You Choose?
Both a Roth IRA and a Traditional IRA have its pros and cons. With a Roth IRA, you can have peace of mind knowing that the growth you have accrued is what you will get at retirement since you contributed after-tax dollars.
For those who believe they will be in a lower tax bracket at retirement, a Traditional IRA vs Roth IRA will be more rewarding. However, if the tax bracket is higher at retirement, this equates to a lesser gain.
See the examples below (figurative numbers are used for easy calculations):