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Question 15

“Comparing tax timing (pay tax now vs. later) is one of the clearest ways to understand Roth versus Traditional choices. A simple illustration: if $1,000 is in a Traditional (pre-tax) account and withdrawals are taxed in retirement, the amount you actually keep after tax depends on your tax rate at withdrawal. By contrast, a Roth contribution of $1,000 is already after-tax, so qualified withdrawals are tax-free. This arithmetic test shows the basic idea — it doesn’t include growth or differing investment returns, but it demonstrates the immediate tax timing difference in a straightforward numeric example.”

You have $1,000 in a Traditional (pre-tax) account. If withdrawals will be taxed at 20% in retirement, how much of that $1,000 will you keep after tax?

Did You Also Know...

By Wise Wallet

Filing taxes early helps catch errors, avoid last-minute stress, and get refunds sooner when you’re owed one.