I know there are some of you who have a hard time grasping the difference between Roth and Traditional options within retirement planning. I believe that has zero to do with your intelligence, and EVERYTHING to do with how my industry makes up ridiculous jargon in order to sound more sophisticated. So, I'm going to break down the difference in the best way I know how... by using a candy analogy (mostly because I love candy). Enjoy!
Imagine going to a candy store and every 5 minutes they give out a piece of candy. The longer you stay in there, the more candy you get. Who wouldn't love that??
You have two options:
You can pay for all the candy you received when you leave
You can pay $10.00 at the door and get unlimited candy
Which option would you take? The second one. Well... the second is your Roth and the first option is your traditional. In both your IRA and 401(k)m your traditional option means that you will not pay taxes at the beginning, but you will pay taxes on any growth that your investments have experienced. Using the Roth option, you pay taxes upfront and get to withdraw all of your investment growth when you reach your retirement age TAX-FREE. And that's a big deal.
For all of you candy haters, I hope this analogy still helped you understand these investment vehicles a little better. Was this helpful? Have any questions, comments, or concerns? Head to the "contact us" page and send us a message. You can also visit our parent company for more personalized help.