Traditional IRA vs. Roth IRA: What’s the Difference?

Individual retirement accounts (IRAs) and Roth IRA plans share many similarities, but each comes with its own set of tax-advantaged perks. Traditional IRA • Contributions to traditional accounts are made with pre-tax dollars • Your money grows tax-deferred until you withdraw it • You’ll pay income tax on withdrawals in retirement • A 10% early withdrawal penalty applies if you take distributions before age 59 ½. • The 2025 contribution limit is $7,000, or $8,000 if age 50 or older • Deducting your contributions lowers your current taxable income • If you are right on the edge between two tax brackets, contributing to a traditional IRA could push you into a lower tax bracket or help you qualify for other tax credits • Tax-deferred growth means you pay taxes later when you withdraw in retirement • You can open one on your own, no employer needed, making an IRA perfect for freelancers, gig workers, and the self-employed Roth IRA • Contributions are made with after-tax dollars, so you won’t get an upfront tax deduction • Money grows tax-free, and qualified withdrawals are also tax-free • You can withdraw contributions (not earnings) at any time penalty-free • The 2025 contribution limit is $7,000 or $8,000 if age 50 or older • When you contribute, you don’t get a tax break upfront, but your money grows tax-free • In retirement, qualified withdrawals (including earnings) are 100% tax-free. This can be a • big benefit if you expect your tax rate to be higher in retirement • Like a traditional IRA, you don’t need an employer to open a Roth IRA, making it appealing to self-employed people Use a Roth IRA if you expect to be in a higher tax bracket later when you retire. Use a traditional IRA if you want to lower your taxable income now. Whichever retirement plan you choose, start early and contribute consistently. Compounding interest and dividends over time means more growth, no matter what type of investment account you have. Call us at (631) 585-9698 to discuss whether to put your money in a traditional IRA or a Roth IRA. #retirement #IRA #rothira #retirementsaving #longislandtaxes #ronkonkoma #familyowned #taxservices #tfs