Roth IRA vs traditional IRA are two of the most common comparision with these two being the most popular for individual retirement accounts. Both accounts have tax advantages but fit into different goals and strategies. Neither of these are perfect for everybody. Comparing Roth IRA vs Traditional IRA will allow you to see a side by side comparison.
Roth IRA
Roth IRA is after-tax contributions, the money is taxed upfront. It grows tax free with no taxes when you withdraw.
Age requirement to withdraw without any penalty: 59.5 and up.
RMDS (required minimum distributions) are not required for Roth IRA for owner or spouse. Roth IRA may require non-spouses who inherit to have minimum withdrawals.
There are maxima contributions per year that can change year to year. In 2024, $7,000 if you are under 50, older than 50 $8,000. The amount of contributions moves up every so oftern, sometimes mutliple years in a row, sometimes it doesnt change for years.
Traditional IRA
Traditional IRA is pre-tax contributions where the money grows tax free and is only taxed on withdrawals.
Age requirement to withdraw without any penalty: 59.5 and up.
There is a 10% pentaly for an early withdrawal and will be taxed also. If you follow the age requirements of when you can start taking your rmd (minimum required distribution).
RMDs start at age 73 if the account owner turned 72 in 2023 or later, otherwise it is 72.
There are maxima contributions per year that can change year to year. In 2024, $7,000 if you are under 50, older than 50 $8,000.
Which is Right for You?
Depending on your circumstances, deciding which one to choose may be difficult. Talking to a tax professional and financial advisor may be able to advise what best benefits you. There are multiple parts of your life to take into consideration other retirement options, tax bracket, state planning to live in retirement, retirement age goal. These are just some of the variables to consider.
Review: Retirement Plan and IRA Required Minimum Distributions FAQs | Internal Revenue Service (irs.gov)
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