- Contributions to a traditional IRA are tax-deductible. You deposit funds before they're taxed, so your contributions are made tax-free. If you make post-tax contributions to a traditional IRA, then you can deduct them on your income tax return.
- A Roth IRA works differently. Contributions are made post-tax, but they are not tax-deductible. The benefit is that your future withdrawals are tax-free.
- You don't have to report Roth IRA contributions to the IRS nor do you report withdrawals. You don't have to pay taxes on what you withdraw from a Roth IRA if you wait until the allowed withdrawal period.
- You can make earlier, penalty-free withdrawals from a non-deductible Roth IRA starting five years from your first contribution. On the other hand, you cannot withdraw from a traditional, deductible IRA without a penalty until you turn 59 ½.
- With both the deductible IRA and the non-deductible Roth IRA, you face a 10 percent penalty if you make withdrawals before you're allowed.
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