Perhaps the most important decision you can make as an investor is deciding between a Roth IRA and a Traditional IRA. Both types of accounts offer tax advantages that can help you save for retirement, but they differ in which taxes those savings come from and when you pay those taxes.

What is a Roth IRA?

A Roth IRA is a retirement savings account named after the senator who proposed it, William Roth. With a Roth IRA, after-tax money goes into the account, allowing you to save more money in the long run. Money in the account grows tax-free, and withdrawals in retirement are also tax-free. Earnings are not taxed, nor are qualified distributions, so you pay no taxes on money taken from the account during retirement. Contributions cannot be deducted from your taxes like with a Traditional IRA, but this is more than made up for by tax-free withdrawals.

What is a Traditional IRA?

A Traditional IRA is a pre-tax retirement savings account. Contributions are tax-deductible, so you don’t pay taxes on the money that goes into the account. Yet when money is withdrawn in retirement, those funds become taxable income. While this tax break is nice when you