Roth/Traditional – What’s the Difference?

As I think most of us are aware, there are (2) types of IRAs – a Traditional and a Roth. These options are growing in availability within employer-sponsored retirement plans, and I think some explanation about the difference is warranted. Traditional accounts are tax-deferred, meaning the money put into the account is not taxed and thus your annual income is lowered. For example, if you are earning $80,000 a year and you’re filing Married Joint, you would start in the 25% bracket. If you contribute 6% of your income to a traditional retirement plan (401k, 403b) your taxable income drops to $75,200 and you end up in a lower tax bracket (15%).

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