Traditional vs. Roth IRA

Traditional Individual Retirement Accounts (IRA), which were created in 1974, are owned by roughly 36.1 million U.S. households. And Roth IRAs, created as part of the Taxpayer Relief Act in 1997, are owned by nearly 24.9 million households.

Both are IRAs. And yet, each is quite different.

Up to certain limits, traditional IRAs allow individuals to make tax-deductible contributions into their account(s). Distributions from traditional IRAs are taxed as ordinary income, and if taken before age 59½, may be subject to a 10% federal income tax penalty. On the flip-side, contributions made to a Roth IRA are not tax-deductible, but you will not have to pay taxes on the distributions made when in retirement. Generally, once you reach age 72, you must begin taking required minimum distributions.

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