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Traditional vs Roth

The information below applies to 401(k) and Individual Retirement Accounts (IRA's).


Traditional

  • Your contributions go to your account on a pre-tax basis - you have not paid taxes on the money

  • Taxes are paid when you withdraw money from your account on both what you contributed and any investment returns (earnings/losses)

  • Employer contributions, if any, go to the same traditional account as your contributions

Roth

  • Your contributions go to your account on an after-tax basis - you've already paid taxes on the money

  • Investment returns (earnings/losses) are tax free

  • You don't have to pay taxes when taking a qualified distribution

    • Generally speaking, a qualified distribution is a withdrawal from your account when you are 59.5 and older or permanently disabled.

  • Employer contributions, if any, go into a traditional account - taxes are paid on this portion of distributions

Talk to a Tax Professional

  • Talk to a tax professional to find out which option is right for you.

  • Ideas to discuss

    • Contribution amount

    • Investment options

    • Qualified distributions

    • Taxes on distributions


Elexys Thomas graduated from Utah Valley University (UVU) with a degree in Personal Financial Planning - a top 3 school for financial planning and has passed the Accredited Financial Counselor exam. She is passionate about sharing financial principles and helping individuals and families meet their financial goals. She'll be updating this page monthly to help you with your financial wellbeing. You can reach her at elexys@teamworksgroup.com

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