As you prepare for retirement, understanding the difference between a traditional vs Roth IRA will help you make the most of your wealth. So what is a Roth IRA, and why do you need one?
In contrast to a traditional IRA, you contribute to your Roth IRA from your after-tax earnings–your take-home pay. Then, qualified distributions in retirement are tax-free. With a traditional IRA, on the other hand, your contributions can be deducted from your taxable income. Amounts in your traditional IRA are taxed upon distribution.
A Roth IRA provides an excellent opportunity for any investor to build a retirement nest egg. It is an especially helpful tool for young professionals who are just starting their investing and career journeys, because there is an income cap as part of the requirement for opening a Roth IRA.
As with all retirement accounts, there are restrictions on when and how you can withdraw money from any IRA. More information on the requirements and qualifications for IRAs can be found on the IRS website.