Confused by Retirement Accounts? Roth, Regular IRAs and 401(k)s Made Simple

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How to Choose the Right Account for You

Let’s say you’ve deposited $5,000 into your retirement account, and over the years it’s grown to $50,000. If you’d placed your money in a Roth account you would pay taxes on the $5,000, but with a Traditional account, you’ll pay taxes when you withdraw the $50,000, instead. That’s a big chunk of tax.

The Roth accounts seem highly beneficial, but it could mean you’ll miss out on tax breaks during your working years. However, the Roth would leave you with a larger nest egg. This seems like the smart options as your finances will be more vulnerable once you retire because you don’t have streams of new income.

The math for weighing up each account against the other is pretty complicated. But it ultimately boils down to you choosing when you’d prefer to pay tax. If you want to study the figures, you can search the internet for a ‘Roth Vs. Traditional calculator’.