When it comes to planning for retirement, plans like IRAs, 401(k)’s, and 403(b)’s are some of the best tools in your financial toolbox. They not only help you save but also provide a range of tax benefits. Let’s talk about the difference between a Roth and a traditional IRA account.

Roth and traditional accounts take opposite approaches when it comes to taxes.

With traditional accounts, such as a Traditional IRA or a 401(k), your contributions are typically tax-deductible in the year you make them, giving you an upfront tax break. You actually deduct the amount you contribute from your earned income before you calculate taxes. However, when you start withdrawing funds in retirement, those distributions are taxed as ordinary income.

Roth accounts, like a Roth IRA or Roth 401(k), work differently. Contributions are made with after-tax dollars, meaning there’s no immediate tax benefit. The payoff comes later: qualified withdrawals in retirement are completely tax-free, including any investment growth. In short, traditional accounts delay taxes until retirement, while Roth accounts let you pay taxes upfront to enjoy tax-free income later.

Disclosures:

Contributions to a traditional IRA may be tax deductible in the contribution year, with current income tax due at withdrawal. Withdrawals prior to age 59 ½ may result in a 10% IRS penalty tax in addition to current income tax. A Roth IRA offers tax deferral on any earnings in the account. Qualified withdrawals of earnings from the account are tax-free. Withdrawals of earnings prior to age 59 ½ or prior to the account being opened for 5 years, whichever is later, may result in a 10% IRS penalty tax. Limitations and restrictions may apply. This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.

Gordon Haas is a Financial Planner with and offers securities and investment advisory services through LPL Enterprise (LPLE), a Registered Investment Advisor, Member FINRA/SIPC, and an affiliate of LPL Financial. LPLE and LPL Financial are not affiliated with Haas Wealth Strategies.

The opinions voiced in this podcast are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which strategies or investments may be suitable for you, consult the appropriate qualified professional prior to making a decision.

Individual tax and legal matters should be discussed with your tax or legal professional. Gordon Haas is not registered as a broker-dealer or investment advisor. There is no assurance that the techniques and strategies discussed are suitable for all investors or will yield positive outcomes. The purchase of certain securities may be required to effect some of the strategies. Investing involves risks including possible loss of principal.