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Taxes now or taxes later?

The traditional-versus-Roth trade-off

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Whether a traditional or Roth retirement account is right for you can depend on several factors, including which account type(s) you are eligible for, your current and expected tax rate and when you plan to take withdrawals.

Key Takeaways:

  • With traditional 401(k)s and traditional Individual Retirement Accounts (IRAs), you generally contribute pretax dollars and pay taxes on withdrawals.
  • With Roth 401(k)s and Roth IRAs, you generally contribute after-tax dollars and may take withdrawals tax free in retirement.*
  • Whether you may contribute to a traditional 401(k) or Roth 401(k) depends on what type of account(s) your employer sponsors.
  • Anyone with earned income may contribute to a traditional IRA, but contributions to Roth IRAs are phased out above certain income levels.
  • Which account is right for you may also depend on when you plan to take withdrawals, as rules vary among the account types.

*Withdrawals of earnings from a Roth account may be taxed and penalized if taken before age 59 1/2 or from an account that has been open for less than five years.

UBS Financial Services Inc. is in the business of establishing IRA accounts for clients and we get paid administrative fees such as account maintenance fees and also fees on investments in the account. For more information on how we get paid, please refer to our Understanding our Fees booklet available at ubs.com/understandingourfees, or ask your UBS Financial Advisor for a copy.

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