IRA vs 401k

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Traditional IRA:
- Pre-tax Contributions: The money you put into a Traditional IRA is typically tax-deductible in the year of the contribution.
- Taxes on Withdrawals: The money you withdraw during retirement is taxed as regular income.
- Required Minimum Distributions: Once you reach age 72, you are required to start taking minimum distributions from your account, whether you need the money or not.
- Early Withdrawal Penalty: If you withdraw funds before age 59 1/2, you typically have to pay a 10% penalty in addition to regular income tax, although there are certain exceptions.
Roth IRA:
- After-tax Contributions: The money you put into a Roth IRA has already been taxed, so you get no tax deduction for contributions.
- Tax-free Withdrawals: The money you withdraw during retirement is generally tax-free, as long as you're at least 59 1/2 and the account has been open for at least five years.
- No Required Minimum Distributions: Unlike a traditional IRA, a Roth IRA has no mandatory distributions during the lifetime of the original owner.
- Early Withdrawal Flexibility: You can withdraw your original contributions (but not any earnings) at any time without penalty or tax. For earnings, regular rules apply.
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