Differences between ROTH and Traditional IRA

A Roth IRA is similar in some senses to the Traditional IRA in that they are tax deferred.  With a Roth IRA we do not deduct the amount of money that gets deposited into the account on our tax return at tax time.  The Traditional IRA, the tax deduction happens the year you make the deposit.  Through the years a Traditional IRA and a Roth IRA work the same.  The gains are tax deferred.  There are no taxes paid as the account grows unless you make an early withdrawal.  The main difference is with the Roth IRA, when you attain age 59 and a half or older, and you make any withdrawals, it’s never taxed again. Essentially, the tax benefits are flip-flopped between a Roth IRA and Traditional IRA.

With the Traditional IRA you get the tax break for the money you put in up front, but then pay taxes for the funds you withdraw at the tax rate you are in then.  The Roth IRA gives no tax benefit in the year you make the deposit.  The growth of the account is tax deferred through the years, and when you make withdrawals from the Roth IRA when your 59 and a half or older, that money is never taxed.

For more information on a Roth or Traditional IRA, contact Matt Renaud at Renaud & Company Registered Investment Advisors at 636-240-5055.