What are the differences between a Traditional IRA and a Roth IRA?

What are the differences between a Traditional IRA and a Roth IRA?

A Traditional IRA allows you to make tax-deductible contributions, while a Roth IRA offers tax-free withdrawals in retirement.

Can you explain the tax implications of each?

Sure! With a Traditional IRA, you pay taxes on withdrawals during retirement, whereas with a Roth IRA, you pay taxes on contributions upfront, but withdrawals are tax-free.

Which one is better for someone in their 30s?

It depends on your current tax rate and future expectations. If you expect to be in a higher tax bracket later, a Roth IRA might be better.

What are the contribution limits for each type?

For 2023, the contribution limit for both is $6,500, or $7,500 if you're 50 or older.

Are there any penalties for early withdrawal?

Yes, both accounts have penalties for early withdrawal, but Roth IRAs allow you to withdraw contributions without penalties.