Whats the difference between a Traditional and Roth IRA?
The Roth IRA was first introduced in 1998, quickly gaining popularity as the new retirement planning investment vehicle. The main difference between the Roth IRA and the Traditional IRA is that contributions to a Roth IRA are not tax deductible and therefore come from after-tax income. However, the income generated by the Roth IRA is tax-free upon qualified withdrawal. In other words, traditional IRAs offer tax deferral while Roth IRA earnings are tax-exempt.
Contributions to a Roth IRA are not tax deductible like those to a Traditional IRA and thus come from after-tax income. However, the principal and all earnings can be withdrawn tax free after remaining in the account for five years. Additionally, unlike Traditional IRAs, participants are not required to take distributions from a Roth IRA starting at age 70 ½.
