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  • Writer's pictureDarcy Bergen

Roth IRAs vs. Traditional IRAs

There are essential benefits of Traditional IRA and Roth IRA, but their tax breaks and ways of being set up are different. The following infographic shows how each type differs and its pros. Depending on your situation, a Roth IRA may be your best option.


The tax treatment is the main difference between a Roth IRA and a traditional IRA. You can take money out of a Roth tax-free when you retire. On the other hand, when you take money out of a traditional IRA, you have to pay taxes on it. So a tax break can be a big reason to save money.


Both traditional and Roth IRAs can help you save money on taxes, but with a Roth IRA, your money grows without you having to pay taxes on it. In addition, with a Roth IRA, withdrawals are not taxed as long as they follow specific rules. Currently, the most you can put into a Roth IRA is $6,000 if you're over 50 and $7,000 if you're over 65.


The way fees are set up is another difference between the two types of IRAs. Betterment is one of the most popular choices if you want a low-cost Robo-advisor with low fees. They don't require a minimum balance and have low management fees, usually less than 0.40 percent. But there are some limits to the fees that Robo-advisors can charge.


Traditional IRAs are harder to set up and keep track of than Roth IRAs. Both can be found online, and the minimum amount to join is about the same. However, traditional IRAs have stricter rules about how much you can put in and when you can take money out. People 72 years old or older with a traditional IRA must take out a minimum amount each year.


Traditional IRAs help you save money on taxes. The money you put in is tax-deductible, and you won't have to pay taxes until you take it out. On the other hand, a Roth IRA can grow without paying taxes. Most of the time, traditional IRAs are less taxed than Roth IRAs. So, they are better for growing money for retirement. But a Roth IRA is the better choice if you want an investment that grows faster.


A Roth IRA can be opened online or in person. When you open an account, choose a company that offers no-load mutual funds and ETFs and doesn't charge any account maintenance fees. You should also choose a company that lets you trade without paying fees. This is especially helpful for people who are just starting as investors. If you are new to investing, you might want to find a professional who helps people like you make the best investment decisions.


The main difference between a traditional IRA and a Roth IRA is that you can put money into a traditional IRA before taxes, which will lower your income. However, you will still have to pay taxes when you take money from a traditional IRA. On the other hand, you can put money into a Roth IRA after you've already paid taxes. This means you can take money out of it tax-free when you retire. As a result, a Roth IRA works like a customized pension, and you can take money out of it without paying taxes.

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