Here’s a quick explanation of the differences between traditional TSP or IRA and Roth TSP or Roth IRA. Traditional is where you get paid and you put it in a traditional retirement account, either TSP or IRA, before you pay taxes on it. You’re postponing taxes until later and then hopefully your account grows a whole bunch, and when you take a distribution in retirement, it’s taxed at your tax bracket. With Roth, you’re gonna go ahead and pay the tax now and put in after tax money and then hopefully it grows, and at retirement you’re taking money out totally tax free.

Roth IRA’s have the 2 rules of having a Roth IRA for five years and being over the age of 59 1/2 when you take out the gains. So which one is better? Well of course that depends on your situation. Check out our channel for more in-depth videos on tax planning and your retirement accounts.

The information provided is not intended as tax or legal advice. Figures shown are for illustrative purposes only furthermore, the information nor the illustrations provided may not be used to avoid any tax penalties. This content represents the general views of Christy Capital Management and should not be regarded as personalized investment advice Nothing herein is intended to be a recommendation. The opinions expressed are subject to change without notice. Retirement Benefits Institute, Inc., and a portion of its contents merged with Christy Capital Management Inc. Brandon Christy, former President of Retirement Benefits Institute, is also the current President of Christy Capital Management, Inc, a registered investment adviser….(read more)

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The Difference Between Traditional and Roth | #shorts #financialplanning | Christy Capital

When it comes to retirement planning, one of the most important decisions you will have to make is whether to invest in a traditional or a Roth account. Both options offer unique benefits and considerations, so it’s essential to understand the difference and choose the one that aligns with your financial goals and circumstances. In this article, we will explore the key differences between traditional and Roth accounts to help you make an informed decision.

1. Tax Treatment:

The primary difference between traditional and Roth accounts lies in how they are taxed. With a traditional account, contributions are made with pre-tax dollars, meaning that you can deduct the amount from your taxable income in the year of contribution. However, when you withdraw funds during retirement, they are subject to ordinary income tax.

On the other hand, Roth accounts are funded with after-tax dollars. This means that contributions are made with money that has already been taxed. The advantage of this approach is that qualified withdrawals in retirement are tax-free.

2. Contribution Limits:

The contribution limits for both traditional and Roth accounts are determined by the IRS and may change each year. As of 2021, the annual contribution limit is $6,000 for individuals under 50 years old, while those above 50 can contribute an additional $1,000 as a catch-up contribution.

3. Required Minimum Distributions (RMDs):

Another important distinction between traditional and Roth accounts is the requirement for minimum distributions. With traditional accounts, the IRS mandates that you start taking withdrawals, known as Required Minimum Distributions (RMDs), by age 72. The amount you must withdraw is based on IRS life expectancy tables and the balance in your account. These withdrawals are taxable.

However, Roth accounts do not have RMDs during the account owner’s lifetime. This allows for more flexibility and potentially enables you to pass on a tax-free inheritance to your beneficiaries.

4. Future Tax Considerations:

When deciding between traditional and Roth accounts, it’s crucial to consider your current and future tax situations. If you believe that your tax rate will be lower during retirement, a traditional account allows you to take advantage of tax savings now. On the other hand, if you anticipate higher tax rates in the future, a Roth account can be an excellent option as it allows you to pay taxes at the current rate and enjoy tax-free withdrawals in retirement.

It’s worth noting that financial situations and tax laws can change over time. Hence, it is advisable to consult with a qualified financial planner, like Christy Capital, to assess your specific circumstances and determine which account type aligns best with your financial goals.

In conclusion, choosing between a traditional and Roth account is a crucial decision that will impact your retirement planning. While traditional accounts provide immediate tax benefits, Roth accounts offer tax-free withdrawals in retirement. Understanding the key differences between them and considering your current and future tax circumstances can help you make an informed choice. Remember to consult with a financial professional to ensure your retirement plans are tailored to your unique needs and goals.