If you think traditional and Roth individual retirement accounts are the same, think again.
There are some big differences between these popular retirement savings plans.
And what you don’t understand about the particular rules that apply can cost you, according to IRA expert Ed Slott, founder of Ed Slott & Co.
With traditional IRAs, you get a tax deduction up front. The taxes you pay on that money are delayed until you withdraw it in retirement.
Roth IRAs, on the other hand, are funded with post-tax money.
“With a traditional IRA, you’re at the mercy or uncertainty of what future higher tax rates might do to your retirement savings,” Slott said. “With a Roth IRA, you don’t have to worry about future rates, because your tax rate in retirement will be zero.”
There are five key differences between these two retirement accounts that savers need to understand.