What's the difference between Traditional and Roth IRAs?
Below is the full transcript for the above video.
An IRA, or individual retirement account, is a type of savings account specifically for retirement that offers certain tax benefits.
There are two common types for individuals: Traditional and Roth IRAs. With either one, you can save—or contribute—up to a certain limit each year, depending on your age and income.
Traditional IRAs may let you deduct your contributions on your taxes. But because you’re able to deduct that money now, you’ll have to pay income tax when you withdraw it during retirement. And you can’t withdraw before you’re 59½ without an additional tax.
Roth IRA contributions, however, aren’t tax deductible. So, while you won’t save on your taxes now, you can withdraw your Roth funds without paying income tax in the future. As long as you meet the requirements, you can withdraw your contributions without penalty.
Each type of IRA has its own specific rules to consider, in addition to these. Your bank or broker can help find the right account for you.
