MONEY MATTERS: Difference between a Roth IRA and a regular IRA

MONEY MATTERS: Difference between a Roth IRA and a regular IRA

What’s a Roth IRA and how does it differ from a regular IRA?

That's a great question and a lot of time people don't understand it. The big difference between a Roth IRA and a regular IRA, they are both an individual retirement account however in a regular IRA when you put your money in $5,500 a year, you get to deduct it off your taxes. With a Roth IRA you are putting the money in after taxes going in, it still grows tax deferred and then there are some different rules for when it comes out in the end.

What’s the advantage of a Roth over a regular IRA at the end when you need the money?

A regular IRA, if you took a tax deduction it will grow tax deferred but when you withdraw you are going to pay tax on it at whatever bracket you are at that time. If you take it out before 59 1/2 there is a 10 percent penalty on top of it. With a Roth however, it grows tax deferred with net dollars going in but when you take it out its all tax free.

Is there any advice that you can give to someone who is trying to decide between a Roth IRA and a regular IRA and what might be best for them?

It's a great question but it's very hard to answer here. It depends on your tax bracket today and where you anticipate your tax bracket to be tomorrow. Which is more advantageous. So really it's a long range thing where you are going to be if your young a person, you have to think about those 40, 50 years down the road opposed to somebody in their 60s.