Traditional or Roth IRA: What is the Difference?
The question many face is whether to open a traditional or Roth IRA.
Individual retirement accounts are popular ways to save for the golden years. You can open an IRA with your bank, as opposed to getting a 401(k) from your employer, and structure your investments to your choosing. Yet the question many face is whether to open a traditional or Roth IRA.
The fundamental difference between the two is how taxes are applied. Traditional IRAs grow your money tax-deferred, using pre-tax dollars for your monthly contribution. However, any future distributions are taxed like income.
A Roth IRA, on the other hand, takes after-tax money and sets it aside. Whatever withdrawals you make in the future will be tax-free. Choosing an IRA depends on if you think your tax rate will be higher or lower in retirement. Want to learn more about retirement savings and how to invest? Talk to your local Vectra Bank representative today.