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)|w https://keisergrad.blackboard.com/webapps/assessment/take/launchisp?course-assessment e Test Posttest-MGF21 1 D Access not allowed-Kathleen Edit View Favorites Tools Help http--psidstudies.adu.den...https--ecf flmb.circ11 (3) fhttps-ecf flimb.circ11 (2) https--ed Lil stion 2 2. What is a difference between a traditional IRA and a Roth IRA? O a.Most people can defer paying income taxes on money placed into a trac be tax-free. O b. Most people can defer paying income taxes on money placed into a Rott be tax-free. O c. There is no difference. A Roth IRA is simply another name for a tradition O d. You must have an annual income of more than $500,000 (for a single tax estion 3Explanation / Answer
Answer to the question, with detailed explanation below:
a.) is correct
Lets clear out the difference between the two:
Roth IRA contributions are after-tax contributions where the contribution is taxed during the current tax year.
Eg., if you make a Roth contribution of $5,000 that grows to $25,000 upon retirement, you will not have to pay taxes on either the $5,000 contribution or the $20,000 in earnings when you withdraw them during retirement, since taxes were paid on the initial contribution of $5,000.
Traditional contributions are pre-tax contributions, meaning the contribution is taken out of your paycheck before income is taxed. The money that is contributed to your TSP will grow tax deferred, and you will pay taxes on your contribution and their earnings upon withdrawal in retirement .
Eg. , if you make Traditional contributions of $5,000 into your TSP account in 2015 and that money grows to say $25,000 upon retirement, you will pay taxes on the $5,000 contribution plus the $20,000 in earnings when you withdraw them. If you are in the 28% marginal tax bracket in retirement and you withdraw that $25,000, you will pay 28% ($7,000) in taxes.
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