Traditional and Roth IRAs are both tax-advantaged retirement accounts. The core difference is simple: when do you get the tax break — now, or in retirement?
Traditional IRA — tax break now:
- Contributions may be tax-deductible in the year you make them, lowering your taxable income today.
- Money grows tax-deferred.
- Withdrawals in retirement are taxed as income.
- Required minimum distributions (RMDs) apply once you reach the age set by law.
Roth IRA — tax break later:
- Contributions are made with after-tax money — no deduction today.
- Money grows tax-free.
- Qualified withdrawals in retirement are completely tax-free.
- No required minimum distributions during the original owner's lifetime.
- Eligibility to contribute phases out at higher incomes.
Which one is right for you? A common way to think about it:
- Choose a Roth if you expect to be in the same or a higher tax bracket in retirement, or want tax-free income later.
- Choose a Traditional IRA if you want the deduction now and expect a lower tax bracket in retirement.
Both have the same annual contribution limit set by the IRS. An RMO Investments adviser can help you decide based on your situation.
Investments are not FDIC insured, are not bank guaranteed, and may lose value. RMO Investments, Inc. is a separate entity from RMO Bank. This article is general information, not tax or investment advice.