Public.com offers two types of retirement accounts: a Roth IRA and a Traditional IRA. To understand which account makes the most sense for you, review the information below, explore the IRS website, and consult with a tax professional.
What’s the difference between a Traditional IRA and a Roth IRA?
| ROTH IRA | Traditional IRA |
Potential earnings grow tax-free | Potential earnings grow tax-deferred, until withdrawn | |
Income Requirements | If you are 18 or older and have earned income within specific IRS income limits, you can contribute to a Roth 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 are made with after-tax dollars
Contributions are not tax-deductible | Contributions are made with pre-tax dollars and may be tax deductible if you meet certain income requirements | |
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 take a withdrawal before age 59 ½, then you may be required to pay taxes on your earnings and a 10% tax penalty, subject to certain exceptions | Withdrawals of contributions and earnings are subject to taxes
If you take 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 certain exceptions |
A key distinction between a Roth IRA and a Traditional IRA lies in when you pay taxes. Contributions to a Roth IRA are made with post-tax dollars, meaning you won't be taxed on eligible withdrawals in retirement, while contributions to a Traditional IRA are typically made pre-tax, deferring taxes until withdrawal.
Choosing between these accounts depends on your current tax situation and future plans. Note that these accounts also have different rules around eligibility based on your income. There are also different rules for withdrawals. We suggest speaking with a tax professional to decide which is best for your financial strategy.
For further questions please contact the Member Support team via in-app chat or email at support@public.com.
This information is for educational purposes only and is not tax or investment advice. Consult your tax advisor for individual considerations. All investing involves risk. Visit the IRS website for more information.