Traditional IRA vs. Roth IRA

What is the difference?

First of all, what is the difference between the two different retirement plans? The most important difference is when the taxes are paid on the money put into the fund. While you will pay the taxes on the back end with a traditional IRA, with the Roth IRA the taxes are paid on the front end. Which means with a traditional IRA, you will be paying taxes when you withdraw the money in retirement. However, there are instances with a traditional IRA where you may escape taxes on the front end upon putting money into the account. On the other hand, with a Roth IRA, you will pay the taxes on the front end, with no taxes on the back end.

It is important to keep in mind, in both traditional and Roth IRAs, your money grows tax free while it’s in the account.

Another important difference to consider is that there are limits on who can contribute to a Roth IRA, while anyone can contribute to a traditional IRA.
If you need to withdraw money earlier, the Roth IRA is much more forgiving than a traditional IRA.

With a traditional IRA you must start withdrawing the money by the time you reach age 70½. You have the option to at any age as long as your modified adjusted gross income is below certain amounts with a Roth IRA.