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Dear Olga: Traditional vs ROTH

Dear Olga,

What is the difference between a Traditional IRA and a ROTH IRA?

Thank you,

Planning for Retirement


Dear Planning for Retirement,

Great to hear you're starting to explore options to provide for retirement!

The main difference between a Traditional IRA and a ROTH IRA is when you'll receive the tax benefit.

With a Traditional IRA, your contributions for the year are tax-deductible for that tax year. You get a tax benefit now and pay taxes on your retirement withdrawals.

With a ROTH IRA, your withdrawals in retirement aren't taxed. You pay current tax rates on the contributions to your IRA now and won't have to worry about taxes on these withdrawals in the future.

The same distinction applies to Traditional and ROTH 401k accounts as well.

Essentially, you're trying to shift your tax liability to when you think you'll have a lower tax rate. This may not be an easy task, to estimate your tax position when you retire. Are you thinking, "I don't even know my tax rate now!"

I hear that; many people don't understand where they stand with their tax rates, especially if you're in the US. Speak to an expert and if you're not sure where to turn, contact me and I can put you in touch with a tax planner.

I will be the first to admit that taxes are not my forte and when there's a question I'm not sure of the answer to, I turn to my network for help.

If you'd like more guidance, I would be happy to have a quick call with you, here's a link to my calendar 🗓

Good luck!



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