What is the difference between a Traditional IRA and Roth IRA?

Composer offers two types of retirement accounts: a Roth IRA and a Traditional IRA. To understand which account makes sense for you, it is important to consider the differences in their key features including the ones below.

Potential Earnings:

• Roth IRA: potential earnings grow tax-free.
• Traditional IRA: potential earnings grow tax-deferred.

Income Requirements:

• Roth IRA: Anyone 18 or older with earned income within specific IRA income limits, you can contribute to a Roth IRA.
• Traditional IRA: Anyone 18 or older with earned income can contribute to a traditional IRA. For contributions to be tax-deductible, specific income limits apply.

Contributions:

• Roth IRA: Contributions are made with after-tax dollars. Contributions are not tax-deductible.
• Traditional IRA: Contributions are made with pre-tax dollars. Contributions may be tax-deductible if certain income requirements are met.

Withdrawals:

• Roth IRA: Withdrawals of contributions are tax-free and penalty-free at any time. Withdrawals of earnings are tax-free and penalty-free if you meet IRS qualified distribution requirements (you must have had your account for 5+ years and be age 59 ½ or older or meet another exemption). If you make a withdrawal before age 59 ½, you may be required to pay taxes on your earnings and a 10% tax penalty, subject to exceptions.
• Traditional IRA: Withdrawals of contributions and earnings are subject to taxes. If you make a withdrawal before age 59 1/2 , you are required to pay taxes on your contributions and earnings, plus you may need to pay a 10% tax penalty, subject to exceptions.

If you have any questions, please contact us at help@composer.trade.

This material is for informational purposes only and is not intended to be a substitute for consultation with a qualified tax professional before making decisions related to your retirement account(s).Visit the IRS website for further information.