If you’re not sure what a Roth IRA is, here is a quick recap on Roth vs. traditional IRAs.
A traditional IRA can allow for a tax deduction and tax deferred growth until you take the money out. At that time, any withdrawals are subject to ordinary income tax. By contrast, a Roth does not allow for a tax deduction when the contribution is made. All of the funds also grow tax deferred but qualified distributions are tax free. A qualified distribution is one that is not subject to tax or penalty. A distribution is considered qualified when it is from a Roth IRA that was established five years or more ago and it is made by someone who is over age 59½ (or meets the penalty exceptions such as death, disability or first-home purchase).
This is why a Roth IRA can be attractive for many investors. Future tax-free income is likely to be even more important in the future if tax rates increase, which it’s hard to imagine they won’t given our $30 trillion debt.
