The difference between traditional IRA and Roth IRA
There are two types of IRA accounts: traditional IRA and Roth IRA. Both types provide tax-deferred growth within the accounts and follow the same rules for annual contribution limits, but they differ in how they are treated for tax purposes.
Contribution limits for IRA
You can contribute to your IRA account at any time. You can make several small contributions throughout the year or one large contribution. Contribution limits change each year based on inflation and changes in the law.
Converting IRA and Roth IRA
You can transfer funds between the two types of accounts. This is called a “conversion contribution” and there is no limit on the amount you can convert. However, there are taxes involved in one type of conversion. Traditional IRA is funded with your pre-tax dollars. Taxes on the money you contribute are deferred until you withdraw. A conversion is not a contribution, but Roth IRA contributions are taxed before being placed in the account. This means you will need to pay taxes on part or all of the amount you convert to Roth IRA.
Key Takeaways
You can usually deduct your contributions to traditional IRA from your taxes. You cannot deduct your contributions to Roth IRA, but you can withdraw them tax-free in retirement. The deadline for contributing each year is the tax return filing deadline (usually April 15) for the following year. There is a limit to the amount you can contribute: $6,000 in total across your IRA accounts for tax years 2021 and 2022, or $7,000 if you are age 50 or older. You can convert between the two types under certain circumstances.
Source: https://www.thebalancemoney.com/annual-ira-contribution-deadlines-2894496
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