eli5 How does a roth IRA work, and how is it different from a traditional IRA?

Question

eli5 How does a roth IRA work, and how is it different from a traditional IRA?

In: 6

Answer 1

Traditional IRA: The money you deposit now is deductible from your taxes this year. Basically you don’t pay income tax on the money you put into it right now. When you withdrawal the money in your retirement you owe taxes on all the growth it made over the years

A Roth IRA: You pay income tax on the money you deposit now, you do not pay income tax on the growth when you withdrawal it in retirement.

There’s a bunch of rules, and limits and such on the taxes and withdrawals. But that’s the gist of it.