It’s never too early to start saving for retirement! There are numerous routes you can take when it comes to retirement saving and investing. Two of the most popular are the traditional IRA and the Roth IRA. Both offer long-term earning potential, but they function a little differently. Read on to learn more!
What’s the Difference?
The letters “IRA” stand for individual retirement account. Both “traditional” and “Roth” IRAs are just that—individual accounts you put money into to save and invest for retirement. The primary difference between them lies in how they’re taxed.
When you have a traditional IRA, you don’t pay taxes on the money you put in until you take it out. You gain this short-term tax advantage by deducting the cost of your IRA contribution on your taxes, thus taking that amount out of your taxable income.
However, when you withdraw the funds, they count as income and are taxed. So, you still do pay taxes on the money; you simply change when you pay those taxes.
The Roth IRA works conversely. You pay taxes on your income first and then contribute to your retirement account. You don’t have to pay capital gains tax on the money in the account, though, and you don’t have to pay taxes on your contributions when the funds are dispersed.
Which One Is Right for Me?
There are several additional rules and regulations surrounding both traditional and Roth IRAs. To find out more about how these accounts work (and which one might be right for you), contact Pro Tax Resolution today!
The team at Pro Tax Resolution offers tax planning help to Memphis-area taxpayers and can help you review the tax implications of your retirement savings and investment choices. Call us today to set up an appointment!