What’s the difference between a Roth IRA & a IRA do you know the difference some people don’t know what kind of retirement people have until it’s to late

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When it comes to saving for retirement, individual retirement accounts (IRAs) are a popular option for many people. However, there are two main types of IRAs to choose from: traditional IRAs and Roth IRAs. While both have their advantages and disadvantages, it’s important to understand the differences between the two before deciding which one to invest in.

One of the biggest differences between traditional and Roth IRAs is the way they are taxed. Traditional IRAs allow contributions to be made on a pre-tax basis, which means that the money is deducted from your taxable income for the year the contribution is made. This can help reduce your tax bill in the short term, but you will be taxed on these contributions and any earnings when you withdraw the money in retirement.

On the other hand, Roth IRAs are funded with after-tax dollars, which means that you pay taxes on the money you contribute upfront. However, the money in a Roth IRA grows tax-free, and withdrawals in retirement are also tax-free. This can be a huge advantage for people who expect to be in a higher tax bracket in retirement or want to leave a tax-free legacy to their heirs.

Another difference between traditional and Roth IRAs is when you are required to start taking distributions. Traditional IRAs require investors to start taking required minimum distributions (RMDs) at age 72, which can be a disadvantage for people who want to keep their money invested for as long as possible. Roth IRAs, on the other hand, do not require RMDs, which means you can let your money grow tax-free for as long as you want.

Finally, the contribution limits for traditional and Roth IRAs are the same, but the income limits for contributing to a Roth IRA are lower. For 2021, individuals who earn more than $140,000 or married couples who earn more than $208,000 are not eligible to contribute to a Roth IRA. Traditional IRAs do not have income limits for contributions.

In conclusion, both traditional and Roth IRAs have their advantages and disadvantages, and it’s important to consider your own financial situation before deciding which one is right for you. If you are younger and expect to be in a higher tax bracket in retirement, a Roth IRA may be the better choice. If you are closer to retirement and want to reduce your current tax bill, a traditional IRA may be the way to go. Ultimately, the choice is yours and should be based on careful consideration and expert advice.