IRA and Roth IRA

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Can someone please explain like I’m five the difference between an IRA and a Roth IRA and why it would be needed?

In: Economics

5 Answers

Anonymous 0 Comments

The two types of IRAs have two different tax treatments and results.

The Roth IRA, the money going in has already been taxed and so when you take money out, after you are 59 1/2, that money isn’t taxed.

With a traditional IRA, the money going it, was not taxed. So when that money is taken out after age 59 1/2 you will owe taxes on it.

In both IRAs, your dividends, capital gains, interest is not taxed while the funds are inside the IRA. So both IRAs are good places to hold stocks and when you buy or sell them, you aren’t taxed on the gains. But you also can’t deduct any losses.

The other main difference between the two types is that in a traditional IRA, after you reach age 72/73, depends on the date, you are REQUIRED to take $$ out of your traditional IRA. There is a
formula for doing so but the guvment makes you take money out and taxes you on it. In your Roth IRA, the assets can stay inside the IRA as long as you live.

Hope this was helpful.

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