What is difference between Roth IRA and normal IRA?

Answer 1

One of key difference is: contribution in Traditional (normal) IRA is before tax money (tax is deferred) and contribution in Roth IRA is after tax money!

Check here for simple understandable comparison between Roth and Traditional IRA in tabular format:
http://www.theusefulinfo.com/finance/compareTR.html

Answer 2

The main difference is the timing of the tax benefit.

In a regular IRA, the taxpayer gets a deduction, when the contribution is made, but he must pay ordinary income tax rates, when the distribution is made at retirement.

A Roth IRA is just the opposite. A taxpayer does not get a deduction, when the contribution is made, but distributions at retirement are not taxed, at all!

Now, how does one choose which type he wants?

Simply ask, "What do I expect my ordinary income tax rate to be in the future, a) lower than it is now, b) the same as it is now, or c) higher than it is now?

Hint: To help figure that multiple choice question, ask, "With the current national debt, the current budget deficit, continued inflationary trends, the obligation to fund wars abroad (as well as to fund domestic national security, here), politicians continually asking for more money to fund pet programs, as well as their own salaries and expenses, with the continued pressure to bail out the nearly insolvent Social Security System, etc.... how does the US Government collect money to pay for all these things?

((Would it be to collect more taxes in the future?))

Phil
http://www.phillipfostercpa.com/tax.html

Answer 3

Put simply, the money you put into a normal IRA is deductible so that your tax bill is less. However, you have to pay taxes on the funds when you eventually take the money out.

The money you put into a Roth IRA is taken out of your income after taxes, so that your tax bill at that time remains unchanged. The upside is that you don't have to pay taxes when you eventually take the money out.

Naturally, this is highly simplified, and there are rules about how much, when, how deductible the contribution is, etc. For more information see:

http://personal.fidelity.com/products/retirement/getstart/aboutira.shtml.cvsr?refpr=iprov02

Answer 4

With a regular IRA, the investments and earnings ar tax-deferred until the money is withdrawn. Then tax is paid as if it were all ordinary income.

With a Roth IRA, after-tax money is invested. But all of the earnings are tax free. So no taxes are paid when the money is withdrawn.

Answer 5

A normal IRA is tax deferred therefore you use pre-tax $ now while your tax rate is high to save then pay income taxes on the ammount withdrawn after retirement when your tax rate is lower
A ROTH IRA is funded with $s that you have already paid income taxes on and grows tax free then when withdrawn there is no income tax.

Answer 6

The difference? Whether the money contributed is subject to taxes upon withdrawal (The Roth, and it's associated earnings are never taxed on with drawal.)