What Is the Difference Between a Traditional IRA and a Roth IRA?


Quick Answer

The biggest difference between a traditional IRA and a Roth IRA is when taxes are paid on the funds saved, states CNN. With a traditional IRA, income taxes are generally paid when money is withdrawn. A Roth IRA it is typically the opposite, as taxes are paid at the outset.

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What Is the Difference Between a Traditional IRA and a Roth IRA?
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Full Answer

Although the tax differences are the most important, there are a number of other differences between the two forms of IRAs as well. Contributions to Roth IRA accounts are not tax deductible, while qualified individuals may deduct some or all of their contributions to a traditional IRA account, according to the IRS. Deductions for traditional IRA contributions may be limited if the contributors also are covered by a retirement plan from their employer or if their income exceeds a certain amount. Individuals who are not covered by a work-sponsored retirement plan may deduct their full traditional IRA contributions.

Another difference pertains to whether owners must take required minimum distributions from the accounts. Traditional IRA accounts require owners to take distributions by April 1st of the year they turn 70 1/2 years, and by December 31st of years after that. Roth IRAs do not require distributions as long as the original owner still holds the account.

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