Financial Planning Newsletter September 2018
October 1, 2018
Roth IRAs vs. Traditional IRAs: What You Need to Know
Originally intended to aid young and low-income workers in saving for retirement,
Roth IRAs have become one of the most versatile and useful investment vehicles around,
regardless of age or income. When deciding between funding a traditional IRA or a Roth
IRA, there are a few key distinctions to keep in mind, such as how your money is taxed,
when you will be able to access it, and what it can be used for.
The biggest difference between traditional IRAs and Roth IRAs is how taxes are handled. With a traditional
IRA, contributions are tax-deductible, and the withdrawals are taxed. On the other hand, contributions to
a Roth IRA is not tax deductible. However, with a Roth IRA, your money can grow tax-sheltered, and your
withdrawals are tax-free. Taxes are due on the front end for traditional IRAs and on the backend for Roth
IRAs. If you anticipate your tax rate at retirement will be higher than your present rate, you are generally better
off in a ROTH IRA.