Roth IRA vs Traditional IRA - 2018 U.S. Tax Changes | Summary and Q&A

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February 27, 2018
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Learn to Invest - Investors Grow
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Roth IRA vs Traditional IRA - 2018 U.S. Tax Changes

TL;DR

This video compares the differences between traditional IRAs and Roth IRAs, highlighting the impact of the recent tax changes.

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Questions & Answers

Q: What is the difference between traditional IRAs and Roth IRAs in terms of taxation?

Traditional IRAs are taxed when withdrawals are made, while Roth IRAs are taxed before contributions. This affects the amount of money available for investment and future tax implications.

Q: How does the tax rate impact the choice between traditional and Roth IRAs?

If tax rates are expected to increase in the future, Roth IRAs may be more beneficial as contributions are made with after-tax money. Traditional IRAs may be advantageous if current tax rates are higher than anticipated future rates.

Q: What are required minimum distributions (RMDs) and how do they apply to IRAs?

Traditional IRAs require individuals to withdraw a minimum amount annually after turning 70 and a half, regardless of financial need. Roth IRAs do not have RMDs, allowing individuals to leave the money invested until needed.

Q: How do 2018 tax changes impact contributions to traditional IRAs?

Contributions to traditional IRAs can lower the current year's taxable income. If tax rates are expected to decrease in 2018 compared to previous years, it may be beneficial to maximize contributions to traditional IRAs before the new tax rates take effect.

Summary & Key Takeaways

  • Traditional IRAs and Roth IRAs are both retirement accounts, but they differ in taxation. Traditional IRAs are taxed when the money is withdrawn, while Roth IRAs are taxed before the money is contributed.

  • In a simplified example, the final retirement savings after taxes are similar for both types of IRAs if the tax rate remains consistent.

  • Other factors, such as future tax rates and required minimum distributions, can impact the choice between traditional and Roth IRAs.

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