Roth IRA vs. Traditional IRA: Which Is Right for You?

It is never too early to start saving to achieve your retirement dream. One of the best ways to do that is by opening an Individual Retirement Account (IRA).

IRAs account for over 34% of retirement assets in the U.S. There are two main types of IRAs: Roth IRAs and Traditional IRAs. We'll review the key differences between Roth and Traditional IRAs to help you make an informed decision about your retirement savings.

What Is a Traditional IRA

Established in 1974, a Traditional IRA is an individual retirement account created to incentivize Americans to save for retirement.

What Is a Roth IRA

Introduced in 1997 as part of the Taxpayer Relief Act, a Roth IRA is an individual retirement account offering tax-free growth and retirement withdrawals. Contributions to a Roth IRA are made with after-tax dollars, meaning you have already paid taxes on the money you contribute.

What Are the Contribution and Tax Deduction Limit

The Internal Revenue Service (IRS) has set some limits on the amount of money you can invest in IRAs. For 2022, this limit is $6,000

Required Minimum Distributions I Must Take From the IRA Account

At age 72, Jim must start taking distributions from his Traditional IRA holdings as per amounts

Can I Avoid Paying Tax Penalties for Early Withdrawal

The IRS has introduced exception scenarios to avoid paying the 10% penalty tax for early withdrawal from Traditional and Roth IRAs

Should I Invest in a Roth IRA or Traditional IRA

This decision comes down to personal preference, a fair guess of what your retirement income will look like, and IRS

Roth IRA Allowable Contribution Limit Based on Income

Similar to income-based deduction limits for a Traditional IRA, your income determines whether you can contribute to a Roth IRA.