What’s the difference between a Traditional IRA and a Roth IRA?
A Traditional IRA is an Individual Retirement Account which you can contribute pre-tax. With a Traditional IRA, your money can grow tax-deferred, but you’ll pay ordinary income tax on your withdrawals, and you must start taking distributions after age 70½.
Traditional IRA: Best option for an individual who expects to be in the same or lower tax bracket when withdrawals begin.
Contributions: Roth: Funded by money that has already been taxed. Example, this option is funded using your take home pay… after the government has received their portion.
Traditional: Funded by money that has NOT already been taxed. Example, this option is funded using money you’ve earned BEFORE the government takes their portion.
Maximum contribution for both is $5,500 ($6,500 if you’re age 50 or older) per year.
Roth: Maximum Age restrictions – NONE
Traditional: Maximum Age restrictions – 70½.
Withdrawals: Roth: Penalty- and tax-free after 5 years and age 59½. Mandatory distributions: NONE. Traditional: Penalty-free but taxed as current income after age 59½. Mandatory distributions: After age 70½.