Final answer:
A Roth IRA differs from a Traditional IRA in that its contributions are not tax-deductible, however, the growth and withdrawals are tax-free. Roth IRAs have income limits for contributions, unlike Traditional IRAs, and don't require minimum withdrawals until after the owner's death. The contribution limits for Roth and Traditional IRAs can change annually, based on IRS guidelines.
Step-by-step explanation:
A Roth IRA differs from a Traditional IRA because the contributions are made with after-tax dollars and are not tax-deductible, but the growth and withdrawals are tax-free. Unlike a Traditional IRA, where you receive a tax deduction for the contributions and then pay taxes upon withdrawal, a Roth IRA offers tax-free growth and no taxes on withdrawals. This advantage makes Roth IRAs especially beneficial for those who expect to be in a higher tax bracket at retirement. There are, however, income limitations for contributing to a Roth IRA, unlike Traditional IRAs which have no income limit restrictions on who can contribute.
The main difference between a Roth IRA and other retirement accounts like 401(k)s and 403(b)s is tax treatment. While 401(k)s and 403(b)s are often employer-sponsored and allow pre-tax contributions which grow tax-deferred, Roth IRAs are funded with post-tax income, and the subsequent earnings are not subject to taxes upon withdrawal. Additionally, Roth IRAs do not require withdrawals until after the owner's death, providing additional flexibility in retirement planning.
Maximum contribution limits for Roth and Traditional IRAs are set by the IRS and can change yearly. For example, as of the 2014 and 2015 tax years, the total contribution limit for both Roth and Traditional IRAs was set at $5,500, increasing to $6,500 for those age 50 or older.