We’re experts on the rollover process and how to move your retirement assets.
Both a 401(k) and IRA (Individual Retirement Account) are retirement accounts that help you save money in a tax-efficient way. But there are 3 key differences:
The difference between Traditional and Roth accounts comes down to when you pay taxes on your money. In a Traditional account, your ongoing contributions (savings) are made before tax. For example, money going into a traditional 401(k) gets taken out of your paycheck before you pay taxes on it. That money grows over time as the investments in your 401(k) increase in value. You’ll eventually pay taxes on it when you start withdrawing it at retirement.
The opposite is true with a Roth account. Your initial contributions are made after-tax. But since you’ve paid tax up-front you don’t have to pay any tax when you start withdrawing assets at retirement.
Think of a Traditional as a tax-me-later account whereas a Roth is a tax-me-now account.