How to Understand Traditional IRA's and Roth IRA's
IRA is the acronym for Individual Retirement Account. The most popular IRA's are the traditional IRA and the Roth IRA. The Roth IRA is named after William V. Roth, Jr, a senator from Delaware. The difference between the two IRA's is the taxes.
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Instructions
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Decide if you'd like your tax benefits now or later.
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A traditional IRA gives its contributors tax benefits now. Money that will go into the account is taken from pre tax money, before the government gets their hands on it. This pre tax money is deductible, and you can defer paying taxes until you start withdrawing money. The earliest money can be withdrawn is at age 59 1/2, and the latest is at age 70 1/2.
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A Roth IRA works a bit differently. The Roth IRA is not tax deductible. Money is contributed to the account after taxes. However, if the money has been in the account at least five years, and you're older than 59 1/2, you can start withdrawing your money. Since you paid taxes prior, you don't have to pay any other taxes on the money you withdraw.
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Tips & Warnings
Sign up to have money automatically taken out from your check and deposited into your IRA. Don't depend on being disciplined-- you might see a cute pair of shoes, and there goes the money for the month.
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