Choosing between a Roth and Traditional IRA depends on your personal preference and financial situation. Here is a breakdown of some of the key differences.
Tax Deductions
Traditional IRA - You may be able to reduce the amount of taxes you owe in the year you contribute if you qualify to claim the deduction on your tax return.
Roth IRA - You won’t be able to reduce your taxes in the year you contribute (unless you qualify for the Saver’s Credit), but you don’t pay taxes when you withdraw your investment gains after the official retirement age of 59 ½ if the account has been open for at least 5 years.
Withdrawals
Traditional IRA - You will owe taxes and possibly an early withdrawal penalty if you withdraw money from your account before the age of 59 ½.
Roth IRA - You can withdraw the money you contributed to your account at any time without paying taxes or a penalty. If you withdraw your investment gains before the age of 59 ½ you will owe taxes and possibly an early withdrawal penalty.
You can see more information about the differences between a Roth and Traditional IRA by visiting our Individual Plans page.