The Difference Between Traditional and Roth IRAs, 401(k)s and Roth 401(k)s

Daniel Penzing
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Traditional IRA vs. Roth IRA

Which One is Better?

What should you get: a Traditional IRA, or a Roth IRA? The answer is not simple. Get it wrong, and you might be paying some stiff penalties. To understand the difference between the two IRAs, let’s first explain the basic features of each.

No Tax on Distributions

The Traditional IRA was the first ever retirement account. After that came the Roth IRA. If you’re someone who likes simplicity in your finances, and who would like a retirement plan without having to pay taxes today (instead paying taxes when you withdraw from it), then you may prefer the idea of a Traditional IRA. As the name suggests, contributions are tax deductible. There are limits on how much you can deposit for this type of account, however, and income caps restrict who can take advantage of it. The tax deferment in picking a Traditional IRA account is not for everyone, as the proliferation of Roth IRA accounts in recent years has shown.

Roth IRAs are a newer retirement plan.

401(k) vs. Roth 401(k)