The difference between a Traditional and Roth IRA comes down to when you pay taxes on your money. Once you understand that, the choice usually gets a lot clearer.
Both accounts exist to help you save for retirement. Both grow over time. The only real difference is the tax timing, and that single factor could determine which one is right for you.
Traditional IRA: Pay taxes later.
With a Traditional IRA, your contributions may be tax-deductible today, and your savings grow tax-deferred; meaning you won’t owe taxes on them until you withdraw the money in retirement. That’s a useful deal if you’re in a higher tax bracket now than you expect to be when you retire. You get a break today, and pay a lower rate later.
Roth IRA: Pay taxes now, withdraw tax-free.
With a Roth, you contribute after-tax dollars, so there’s no upfront deduction. But when you withdraw in retirement, that money comes out completely tax-free, including all the growth you’ve built up over the years. If you think your tax rate will be higher later (or you just like the idea of tax-free retirement income), a Roth is often the stronger long-term move.
So, which one is right for you?
Here’s a simple way to look at it: If you’d rather have the tax break now, lean toward the Traditional account. If you’d rather have tax-free income later, lean toward a Roth account. And if you’re not sure where your taxes are headed, a Roth gives you more flexibility down the road so you can withdraw your contributions (not earnings) at any time without penalty, which a Traditional doesn’t allow.
AllCom offers both Traditional and Roth IRAs as Share Accounts (flexible, no minimum) and IRA Certificates (fixed rate, fixed term). Either can be a solid home for your retirement savings.
Still weighing the options? Stop by in person or give us a call to talk to one of AllCom’s great Financial Services Representatives today. We’ll walk you through what we offer and help you pick the account that fits.
And as always, we recommend working with a tax professional for advice specific to your situation.