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What is one question an investor should ask when deciding whether or not they would like to open a Roth IRA or a Traditional IRA?

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What is one question an investor should ask when deciding whether or not they would like to open a Roth IRA or a Traditional IRA?

  • Do I want to make a guaranteed return of 6% or 8% ?
  • Do I want to pay taxes now or later?
  • Do I want to take advantage of my employer’s matching contribution?
  • Do I want to take on more or less risk?



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    2 Answers

    1. Anonymous

      The most relevant question an investor should ask when deciding between a Roth IRA and a Traditional IRA is:

      “Do I want to pay taxes now or later?”

      This question addresses the fundamental difference between the two types of IRAs:

      • Roth IRA: Contributions are made with after-tax dollars, meaning you pay taxes on the money before it goes into the account. However, the money grows tax-free, and qualified withdrawals during retirement are also tax-free.
      • Traditional IRA: Contributions are typically made with pre-tax dollars, meaning you get a tax deduction for the amount you contribute (subject to income limits and other factors). The money grows tax-deferred, but you pay taxes on withdrawals during retirement.
    3. Anonymous

      Do I want to pay taxes now or later?

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