In Very simple terms. What are IRAs ?

Question

And what are the differences between a ROTH and a TRADITIONAL?

Answer 1

You've gotten some good answers.

The basic difference between the two is WHEN you pay taxes on the money. With a traditional IRA, you put the money into the account without paying taxes on it (usually by payroll deductions) and then you owe taxes when you take it out. It's designed to be taken out at retirement and there are penalties if you take it out before.

With a Roth IRA, you pay taxes on your contributions before you put them into the account. That means they come out tax free, as long as you follow the rules for withdrawals.

The big question is whether or not you expect to be in a higher tax bracket after you retire... if so, you're probably better off with a Roth.

Another bonus: IRAs are one of very few retirement vehicles that allow you to take funds out early in the event that you become disabled. (This may be an excellent option for those without disability insurance.)

Another bonus (copied directly from Tax Topic 558 from the IRS, see link below):
The following exceptions apply only to distributions from IRAs:

Distributions equal to or less than your qualified higher education expenses,
Distributions made to pay for a first–time home purchase, and
Distributions made to pay health insurance premiums if you are unemployed.

Answer 2

Teddee ... See my link below. In most cases, if you're young, you'd want to put as much money as you can into a Roth-IRA and invest it wisely.

Here's the chief difference. The money placed in a regular IRA is tax deductible. When you begin to withdraw the funds at age 59½, the amount withdrawn becomes taxable income.

However, with a Roth-IRA, although the amount you deposit is not tax deductible, after all the gains you've earned, the funds withdrawn at age 59½ are NOT taxable.

Again ... If you're young, a Roth-IRA is the way to go. The U.S. government in an effort to encourage more savings, make us less dependent on Social Security, and give us a decent chance to amass some wealth has given us this great opportunity. Use it to the fullest and retire wealthy.

Answer 3

IRA's are a form of investment regulated by the federal government and intended for retirement savings. There are two types. Traditional and Roth.

Traditional allows you to contribute some amount (it was $2,000, but I think it is higher now) to an IRA account. The key benefit is that you get to contribute that money tax free. So, your taxable income is reduced by $2,000 or whatever you contribute. Once your money is in the IRA it grows tax free year after year until you hit retirement age (59.5 for IRA's I think). At retirement you can withdraw money but the catch is that you have to pay tax on the money you withdraw as if it were income. So, IRA's allow you to skip paying taxes now and face it at retirement.

Roth IRA's allow you to pay taxes up front and then when you reach retirement you can withdraw your original funds and all the gains tax free.

Answer 4

IRA stands for Individual Retirement Account. It is a special type of investment account you can set up to save money for retirement. It enjoys special tax advantages depending upon which type of account you establish. If you set up a Traditional IRA, that means you do not have to pay federal income taxes on the money you put into the account. However, you will have to pay taxes on the money and any increase in value when you withdraw the money from the account upon retirement. If you set up a Roth IRA, that means you do pay taxes on the money when you put it into the account, but you are able to take it out tax free, including any increase in value, when you retire. The maximum amount of money you can contribute to an IRA in any given year is $4,000, except in special circumstances for people approaching retirement age. Only people whose income falls below a certain level (around $75000 per year) are eligible to contribute to Roth IRA's.

Answer 5

Individual Retirement Account

The Roth IRA you pay taxes on your deposits, not your earnings on those deposits...it is a highly recc'd IRA

A traditional you deposit money and you pay taxes on your withdrawals which have accumulated value and you pay higher amounts of taxes than on a Roth....advised but Roth is Better..you pay less taxes in the end.

Answer 6

IRA = Individual Retirement Account

Roth IRA = Tax free growth & tax free withdrawal at retirement.

Traditional IRA = Tax deductible & taxed at retirement.

Answer 7

Roth= Can't deduct it off your taxes when you put it in but it is all tax free when you take it out.

Traditional= You can deduct it when you put it in , but you pay INCOME tax on it ALL when you take it out..

(the quick and dirty version)

Answer 8

retirement investment - you cant touch until a certain period unless you want ot be penalized and some are tax defered

Answer 9

well i know u can claim it on ur taxes. lol.. best advice is to call a local c.p.a. office and speak w/ someone there. they can help u and give u more advice and info on it.

Answer 10

IRAs- i really aint sure? lol sorry bad huh? couldnt resist