• <h4 class="dechead">On One Hand: Traditional IRAs Are Tax-Deferred

    A traditional IRA is a tax-deferred individual retirement account. You can deduct traditional IRA contributions from your taxable income and put off paying taxes on the amount until you withdraw the money. You cannot take distributions from your IRA without penalty until age 59 ½, and are required to start taking them in the year you turn 70½.

    On the Other: Roth IRAs Are Tax-Exempt

    Roth IRA contributions cannot be deducted on your taxes, however you are not taxed on money you withdraw from your Roth in most cases. A withdrawal of contributions you have made to your Roth is never taxed; a withdrawal of earnings is not taxed if they are part of a qualified distribution. To be qualified, a distribution must be taken after you turn 59 ½ and have held the Roth account for at least five years. Roth IRAs are not subject to required distributions.

    Bottom Line

    It is possible to have both a traditional and a Roth IRA, and there are tax advantages to both. You are generally in a lower tax bracket when you start taking distributions from your traditional IRA, so you pay less tax than you would have when you contributed to the account. A Roth IRA is funded with already-taxed money, but you are not taxed on distributions or on earnings.

    Source: All About IRAs -- Traditional vs. Roth

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