Roth IRA vs. Traditional IRA: Which Is Right for You?

It is never too early to start saving to achieve your retirement dream. One of the best ways to do that is by opening an Individual Retirement Account (IRA).

IRAs account for over 34% of retirement assets in the U.S. There are two main types of IRAs: Roth IRAs and Traditional IRAs.

Established in 1974, a Traditional IRA is an individual retirement account created to incentivize Americans to save for retirement. It offers tax-deferred growth and tax-deductible contributions, meaning you can deduct your contributions from your taxes in the year you make them.

What Is a Traditional IRA

IRAs are more than just a savings account, giving you the option to invest in mutual funds, individual stocks, and even precious metals and grow your money tax-deferred. You won't have to pay taxes on the funds until you withdraw them in retirement.

Introduced in 1997 as part of the Taxpayer Relief Act, a Roth IRA is an individual retirement account offering tax-free growth and retirement withdrawals.

What Is a Roth IRA

In general, Roth IRA gives you the flexibility to withdraw your savings at any time. Traditional IRAs allow you the benefit of a tax deduction in the current (contribution) year.

You can contribute to an IRA if you have taxable income. The Internal Revenue Service (IRS) has set some limits on the amount of money you can invest in IRAs.

What Are the Contribution and Tax Deduction Limit

For 2022, this limit is $6,000 and has been unchanged since 2019. If you are over 50, you can contribute up to $7,000.

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