Traditional IRA VS Roth IRA
An Individual Retirement Account (IRA) is an account set up at a financial institution that allows an individual to save for retirement with tax-free growth or on a tax-deferred basis.
A Traditional IRA lets you postpone taxes and any earning that grow tax-deferred until you withdraw them in retirement. You can deduct the maximum annual contribution on your income tax return. For 2021 the maximum contribution limit is $6,000, or $7,000 if you’re 50 or older. You must begin taking required minimum distributions (RMD’s) from your account by April 1 of the calendar year following the year you turn 72 (age 70 ½ if you attained age 70 ½ before 2020). A Traditional IRA is best suited for retirees who expect to be in a lower tax bracket than they were in pre-retirement.
A Roth IRA lets you contribute after-tax dollars which grow tax-free and can be withdrawn tax-free. There are earnings limits but no required distribution at 72. The 2021 contribution limit is up to $6,000, or $7,000 if you’re 50 or older. Individuals age 59 1/2 or older holding accounts for at least 5 years can withdraw money without paying federal taxes. You pay taxes on your money upfront, let your money compound, and then withdraw in retirement tax-free.
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Source: Charles Schwab