How to decide between a Roth IRA and a Traditional IRA

The introduction of the Roth IRA just added more confusion to the investing concept for some of us newbie investors. Basically, the difference between the Roth IRA and Traditional IRA is whether you want your funds taxed before it goes into the IRA or whether you want your funds taxed when you withdrawal it from the IRA. Of course, each IRA is a little more complex regarding income limitations, max contributions, and etc. Here is further clarification of their basic differences to help you decided which IRA investment is best for you.

Difficulty: Moderately Easy

Instructions

1. Roth IRA: Your funds are taxed before you contribute to the IRA. Traditional IRA: Your funds are tax exempt when you contribute to the IRA.

2. Roth IRA and Traditional IRA: Your principal grows tax-free (which can then be invested into stocks, mutual funds, etc).

3. Roth IRA: Your withdrawals are tax-free (once the holding requirements have been met). Traditional IRA: Your entire withdrawal is subjected to taxation.

Tips & Warnings

• As with any investment, please do thorough research before investing any funds.