The main difference between a Traditional and a Roth IRA is when you pay income taxes on the money you put in the plans.
With a Traditional IRA, your contribution is tax deductible (with a few exceptions outlined by the IRS here) and you don’t pay taxes on the contribution amount until you later withdraw it (either upon retirement or early with a penalty).
A contribution to a Roth IRA is not tax deductible; you pay taxes before the contribution, but you do not pay taxes later on the amount you withdraw. In addition, with a Roth IRA, you can leave the money in for as long as you want, letting it grow as you continue to age. With a Traditional IRA, by contrast, you must start withdrawing the money when you reach age 70½.
Roth IRA contributions are limited by income level. In general, you can contribute to a Roth IRA for 2016 if you have taxable income and your modified adjusted gross income is either:
- Less than $194,000 if you are married filing jointly;
- Less than $132,000 if you are single, head of household, or married filing separately (if you did not live with your spouse at any time during the previous year); or
- Less than $10,000 if you’re married filing separately and you lived with your spouse at any time during the previous year.
For more information on contribution limits, please refer to the IRS website.
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