How does a Roth IRA compare to a Traditional IRA?

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

The main differences include tax treatment, withdrawal rules, and eligibility. Roth IRAs are funded with after-tax dollars, while Traditional IRAs use pre-tax dollars. This means you pay taxes on withdrawals from a Traditional IRA, but not on qualified withdrawals from a Roth IRA.

Can I contribute to both types of IRAs?

Yes, you can contribute to both a Roth IRA and a Traditional IRA, but your total contributions cannot exceed the annual limit set by the IRS.

What are the tax benefits of each?

With a Traditional IRA, you may get a tax deduction for contributions, reducing your taxable income. With a Roth IRA, your withdrawals in retirement are tax-free, which can be beneficial if you expect to be in a higher tax bracket later.

Which one is better for retirement savings?

It depends on your financial situation and goals. If you expect your tax rate to be higher in retirement, a Roth IRA might be better. If you want to reduce your taxable income now, a Traditional IRA could be more advantageous.