Traditional Roth Ira

Traditional IRA & Roth IRA ## The Core Distinction: When You Pay Tax Both Traditional and Roth IRAs offer tax advantages for retirement savings. The fundamental difference is timing: do you want the tax break now (Traditional) or later (Roth)? Traditional IRA: Contribute pre-tax dollars (if eligible to deduct), money grows tax-deferred, pay ordinary income tax on withdrawals in retirement. Required Minimum Distributions begin at age 73. Roth IRA: Contribute after-tax dollars (no deduction), money grows tax-free, qualified withdrawals in retirement are completely tax-free. No RMDs during the owner's lifetime. Real-world scenario: A 35-year-old in the 30% tax bracket contributes $7,000 to a Traditional IRA. She saves $2,100 in taxes today. Over 30 years the account grows to $56,000. At withdrawal she owes income tax on the full $56,000 at whatever her future rate is. With a Roth IRA, she pays the $2,100 tax now but the entire $56,000 — including all growth — comes out tax-free in retirement. The Roth wins when future tax rates are higher. The Traditional wins when future rates are lower. Neither can guarantee the future, so both have a place in financial planning. --- ## Traditional IRA: Key Rules Contributions: - 2024 limit: $7,000 under age 50; $8,000 age 50 and older (catch-up contribution) - Must have earned income at least equal to the contribution amount (wages, self-employment income; Social Security and investment income do not count) - Deductibility depends on whether you (or your spouse) are covered by a workplace retirement plan and your income If neither you nor your spouse is covered by a workplace plan, contributions are fully deductible regardless of income. If you ARE covered by a workplace plan,…