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Traditional IRAs & Roth IRAs
Traditional IRA
A Traditional IRA is an individual retirement account (IRA) in the United States. An IRA is held at a custodian such as a bank or brokerage and proceeds within an IRA may be invested in anything that the custodian allows, such as, stocks, bonds, mutual funds, real estate, etc. Contributions made to a Traditional IRA are typically made on a "Pre-Tax" basis, thus providing for the tax-deductibility of contributions, subject to certain IRS rules. Transactions in the account, including interest, dividends and capital gains, are not subject to tax while still in the account, but upon withdrawal from the account, they are subject to income tax. Traditional IRAs also require individuals to take required minimum distributions from the account at certain ages and subject to certain IRS requirements. Holders of IRAs are advised to seek counsel from a qualified tax professional for more detail on the tax benefits and drawbacks of a Traditional IRA.
Roth IRAs
A ROTH IRA is an individual retirement account (IRA) in the United States. A ROTH IRA is held at a custodian such as a bank or brokerage and proceeds within a ROTH IRA may be invested in anything that the custodian allows, such as, stocks, bonds, mutual funds, real estate, etc. Contributions made to a ROTH IRA are typically made on an "After-Tax" basis, thus providing no tax-deductibility of contributions. However, transactions in the account, including interest, dividends and capital gains, are exempt from income tax (subject to certain IRS rules and age limits), even when money is withdrawn from the account. In addition, as opposed to the Traditional IRA, in a ROTH IRA there are generally no requirements on the age in which an individual must withdraw money from the account.
Information on this page is not intended to provide tax advice. Holders of IRAs should seek the council from a qualified tax professional for more detail on the tax benefits and drawbacks of IRAs.
Please click here for more information on IRAs and to compare the differences between the ROTH IRA and Traditional IRA.
