Roth IRAs use after-tax money and let you withdraw tax-free; traditional IRAs use pre-tax money and you pay taxes on withdrawals. Both have a $6,000 annual limit. Roth eligibility phases out at $122k single or $196k married, and early withdrawals before 59½ cost 10% plus taxes.
Today I just wanted to go over briefly the differences between a Roth IRA versus a traditional IRA. The Roth IRA— anytime you see the word Roth in front of a retirement account, Roth IRA, Roth 401, what it's saying is that The money contributed into that account has already had income tax paid on it. The benefit being when you later take out money from the retirement account, you don't pay tax on it at that point. So the goal being the money that grows inside of that Roth account doesn't end up having tax liability on it ever. A traditional IRA, on the other hand, is literally the exact opposite. You can contribute money to the traditional IRA. That contribution is a tax deduction in the year you make the contribution, but when you pull the money out of the account, you will then pay income tax at that point. So all the growth that comes in the account during the years that you have it, you will eventually pay income tax on that amount. There are pros and cons and arguments on both sides of the party on you should always do a Roth or you should always do a traditional IRA. That's not what this video is about. I just wanna help you understand the difference between the two of them. And that's the main difference. So here's a couple other intricacies with both. You can only contribute the contribution amount to All of your IRA accounts, meaning if the limit is $6,000, which traditionally has been around $6,000, you will need to check each year. It changes, and the government can change it at any point too based on whatever they have going on. But check. Let's just say it's $6,000. I can put $6,000 into a Roth. I could put $6,000 into a traditional IRA. I cannot put $6,000 into both. I could put some money into a Roth and some money into, into a traditional, but it has to be the total contribution amount, no more than that. So $6,000 total into both of the accounts, however I want to break that up. There is also income limitations on if you can put money into either one. So again, these specific numbers will change. Based on the tax year that you are putting money in, but they have been around like $122,000. If you are single and you make more than $122,000, your contributions into a Roth aren't allowed, or if you're married, $196,000. On the traditional IRA, you can always put money into the traditional IRA regardless of how much money you make. However, based on some things like does your work provide a plan and how much money you make, your contribution may not actually be tax deductible. I don't know why they make these rules the way they do, but there you have it. Roth versus a traditional IRA. One is pre-tax money, the other is post-tax money. One you can pull— the Roth you can pull the money out. Tax-free. The traditional, you pull money out and you pay tax on. In both cases, if you pull money out before you're 59 and a half, you will have a 10% penalty on top of any income tax that you may have to pay on it. But with these 2 accounts, we do recommend you consult with a financial planner on if you need guidance on which one might be right for you. So there you have it. Profit is a choice. Be financially resilient.
