While you pay taxes on the money you deposit in a Roth IRA, the profits from investing in the account are tax-free. In addition, when you turn 59 and a half years old and have had your account open for at least five years, withdrawals are tax-free. Contributing to a traditional IRA can generate a current tax deduction and, in addition, allows for tax-deferred growth. While long-term savings in a Roth IRA may result in better after-tax returns, a traditional IRA can be an excellent alternative if you qualify for a tax deduction.
Use this traditional IRA calculator to see how much you could save with a traditional IRA. Opening a Roth IRA is always a good idea, but if you belong to one of the above income categories, running out of a Roth IRA could cost you a big reduction in your taxes. Although contributions to a Roth IRA in and of themselves are not tax-deductible, you can apply for a tax credit for a Roth IRA or claim a loss in a Roth IRA. If you can benefit from funding a Roth IRA and get a tax credit to save, there are many ways to activate a Roth IRA account.
For now, know that the traditional IRA provides you with an opportunity to reduce your taxes immediately, since contributions to traditional IRAs are generally tax-deductible. How Roth IRAs differ from traditional IRAs It's easy to get confused between the different types of IRAs.