What’s the difference between Traditional and Roth IRAs? 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. Watch for helpful information on specific rules to consider for each type of IRA.

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~~~Video Transcript
Title: What’s the difference between Traditional and Roth IRAs?

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 59 ½ 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.
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When it comes to saving for retirement, Individual Retirement Accounts (IRAs) are a popular and tax-advantaged option for many individuals. However, there are different types of IRAs to choose from, including Traditional and Roth IRAs. Understanding the differences between these two types of accounts can help you decide which one is best for your financial goals and needs.

One of the main differences between Traditional and Roth IRAs is how they are taxed. With a Traditional IRA, contributions are typically tax-deductible, which means you can reduce your taxable income for the year in which you make the contribution. However, when you withdraw funds from a Traditional IRA in retirement, those withdrawals are considered taxable income.

On the other hand, contributions to a Roth IRA are made with after-tax dollars, meaning you do not get a tax deduction for your contributions. However, withdrawals from a Roth IRA in retirement are tax-free, as long as certain requirements are met.

Another difference between Traditional and Roth IRAs is the age at which you must start taking required minimum distributions (RMDs). With a Traditional IRA, you are required to start taking RMDs at age 72, regardless of whether you need the money or not. With a Roth IRA, there are no RMDs during the account owner’s lifetime, which can give you more flexibility and control over when and how you withdraw funds in retirement.

It’s also important to note that there are income limits for contributing to a Roth IRA, whereas anyone can contribute to a Traditional IRA as long as they have earned income. Additionally, Roth IRAs allow for penalty-free early withdrawals of contributions (but not earnings) for certain purposes, such as buying a first home or paying for qualified education expenses.

In summary, Traditional and Roth IRAs have different tax treatments, withdrawal requirements, and contribution limits, which can impact your overall retirement savings strategy. It’s important to consider your current financial situation, future tax expectations, and retirement goals when deciding which type of IRA is right for you.

If you’re unsure about which type of IRA is best for your situation, consider speaking with a financial advisor or tax professional. They can provide personalized advice based on your individual circumstances and help you make informed decisions about saving for retirement. TurboTax Support also offers valuable resources, including videos and articles, to help you make the most of your IRA contributions and plan for a secure financial future.