Traditional IRA / 401(k) vs Roth IRA / Roth 401(k)
Deduct now, grow tax-deferred, pay ordinary income tax on withdrawal. Pay tax now, grow tax-free, qualified withdrawals are untaxed.
What is the difference between Traditional IRA / 401(k) and Roth IRA / Roth 401(k)?
Traditional = deduction now, taxed later, RMDs apply. Roth = no deduction, tax-free later, no RMDs for the original owner. Choose on the bracket now versus in retirement.
| Traditional IRA / 401(k) | Roth IRA / Roth 401(k) | |
|---|---|---|
| In one line | Deduct now, grow tax-deferred, pay ordinary income tax on withdrawal. | Pay tax now, grow tax-free, qualified withdrawals are untaxed. |
| Example | $24,500 into a 401(k) - the 2026 employee limit - saves about $7,840 in tax this year in the 32% bracket, deferred to retirement. | $7,500 a year (the 2026 IRA limit) for 30 years at 7% grows to roughly $708,000, none of it taxed on withdrawal. |
| Unit | Taxes & Account Types | Taxes & Account Types |
| Series 65 | Section 3: Client Strategies | Section 3: Client Strategies |
What is Traditional IRA / 401(k)?
Contributions may be pre-tax or deductible, growth is tax-deferred, and every dollar withdrawn is taxed as ordinary income. Withdrawals before 59 1/2 generally incur a 10% penalty, and required minimum distributions begin at age 73.
What is Roth IRA / Roth 401(k)?
Funded with after-tax dollars. Growth and qualified distributions - after age 59 1/2 and a five-year holding period - are entirely tax-free. Roth IRA contributions (not earnings) can be withdrawn at any time without tax or penalty, and Roth IRAs have no RMDs for the original owner.