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Do you know the difference between Traditional and Roth Retirement Plans?

August 18, 2014

When you set up a retirement account, one of the first decisions you face is whether to have a traditional plan or a Roth plan. The difference between traditional plans and Roth plans comes down to how your earnings are taxed.

With a traditional plan, money you deposit into your account can be deducted from your taxable income for the year. This can be a significant cost-saving measure if the amount you deduct places you in a lower tax bracket. When you withdraw money from your account, taxes will be assessed on it.

Contributions to Roth plans, on the other hand, are not deducted from your taxable income—they are made with money that has already been taxed. After you retire, withdrawals from Roth accounts will not be taxed.

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