This vs That ⚡ Traditional vs Roth Retirement Accounts
By TRG Advisors on April 6, 2021
If a Retirement Account is right for you, which one should you choose — a Traditional or a Roth? You would think the answer is simple.
The key difference between Traditional and Roth Retirement Accounts lies in the timing of their tax advantages. In both a Traditional and Roth, the money you contribute has the potential to grow tax-deferred.
However, there are several big differences between the two that may affect which one you decide to use. Investors should review objectives and marginal income tax bracket to evaluate whether to contribute to a Traditional Retirement Account, a Roth Retirement Account, or a combination of both.
Tax Break Now
Contributions go into the account pre-tax, and you may be eligible for a tax deduction. However, distributions of both principal and growth are taxable upon withdrawal.
Tax Break Later
Contributions go into the account after-tax, so you do pay taxes on the money you put in. However, distributions of both principal and growth are tax-free upon withdrawal.
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1 Source: Voya Financial.