National Financial Literacy Month is celebrated in April, which is a great opportunity for us to check and promote financial literacy. We will be sharing great readership, scholarship, and cinematics as we raise awareness about this important topic. In this readership we discuss the difference between a Roth and Traditional IRA.
What is A Roth vs. Traditional IRA?
The main difference between Roth vs traditional IRAs is the timing of the tax bill. With a traditional IRA, you get a tax break in the year you make your contribution, if you’re eligible. That means you will pay income taxes on contributions and any growth they achieved in retirement when you withdraw them. With a Roth IRA, you pay taxes on what you contribute today, but you get a tax break in retirement. (Andrea Coombes, Benjamin Curry)
Building a post-career nest egg is not something the profession of nursing often talks about. However, as nurses have been making more money as a result of the pandemic; financial literacy as become a deeper conversation. Two of the most common individual retirement accounts are the Roth IRA and the Traditional IRA. Choosing the right one can save you thousands and prevent hefty penalties.
First, always check your IRA eligibility. Investing in an IRA allows your money to grow. How that money grows over time depends on how much you invest. Below are our top (3) literacy facts.
1. With traditional IRAs, you deduct contributions now and pay taxes on withdrawals later, while Roth IRAs allow you to pay taxes on contributions now and get tax-free withdrawals later.
2. Contributions to traditional IRAs generally lower your taxable income in the contribution year. The Roth IRA has no immediate tax benefit for contributing. However, if deductible, contributions reduce taxable income in the year they are made.
3. There are income thresholds that prevent many people from contributing directly to Roth IRAs.
For more in-depth information contact the IRS.