Traditional IRA
- Money is contributed before taxes, so you save on taxes now.
- You pay taxes when money is withdrawn during retirement.
- There is a 10% penalty if you make a withdraw before retirement.
- No taxes are paid on account earnings until retirement.
- No income restrictions, available to everyone. However, tax deduction is limited by income.
Roth IRA
- Money is added after tax, so you pay taxes today.
- Money is withdrawn tax free during retirement
- No penalty to withdraw contributions before retirement. There is a penalty to withdraw earnings before retirement.
- No taxes paid on account earnings
- Not available to high income earners
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