Nate Ritchison, CFP® explains how the Roth IRA and traditional IRA retirement savings accounts differ when it comes to tax treatment and required minimum distributions. NEW IN 2020: The age to begin required minimum distributions (RMDs) has changed from 70½ to 72.

Transcript:

The question I often get when I meet with clients is, “what’s the difference between a traditional IRA and a Roth IRA?” Well, let’s discuss the similarities and the differences about the IRAs.

The similarities are, they’re retirement accounts, specified under the IRS tax code. That allows you to put money in and get some sort of special tax treatment as the money grows.

With a Roth IRA, you don’t take a tax deduction when you put money in – it’s an after-tax contribution. Then that money will grow, tax-free, as well as the distributions, the withdrawals from the accounts, will be completely tax-free at withdrawal. The other nice thing about a Roth IRA is that there is no required minimum distribution, much like there is with a traditional IRA at age 72 beginning in 2020.

Now, with the traditional IRA, a little bit different, is it’s a tax deduction when you put the money in. So you get to write it off on your taxes. Then that money will grow tax-deferred, meaning that when you start to withdraw the money, you will pay ordinary income taxes on those withdrawals. The other thing is, at age 72, you’ll be required to start pulling some money out if there is still money in that account.

Those are the chief differences between the Roth IRA and the traditional IRA. If you have any more questions, please visit our Web site at PureFinancial.com, and we’d be happy to help you.

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