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Individual Retirement Accounts

Understanding Roth and Traditional IRAs: A Simple Guide


Saving for retirement is like preparing for a long journey. In the Bible, Proverbs 21:5 says, “The plans of the diligent lead surely to abundance, but everyone who is hasty comes only to poverty.”  

This wisdom holds true when deciding between a Roth Individual Retirement Account (IRA) and a Traditional IRA for your retirement savings. Both are great tools, but they work differently. Let’s break them down in simple terms. 

Think of it as a piggy bank for your older self. It’s a unique account where you can save money for retirement, and it comes with certain tax benefits.  

With some IRAs, you work with a financial advisor to determine your comfort level with risk. The financial advisor determines a mix of stocks, mutual funds and other investment options to meet your needs and comfort level.    

IRAs are a little different at LCEF. When you open an IRA at LCEF, you’ll earn a fixed rate for the life of the term, from six months to five years. Rates and terms are based on LCEF’s current term note offers.   

Plus, you’ll pay no administrative fees with an IRA at LCEF.  

A Roth IRA is like planting a seed and watching it grow. You pay taxes on the money you put in now, but when you retire and need the money, you don’t have to pay any taxes on what you withdraw, including the earnings! With a Roth IRA, you give some taxes now; in return, you get tax-free money when you’re older. 

Who is it suitable for? A Roth IRA is perfect for anyone who is currently in a lower tax bracket but expects to be in a higher one when they retire, such as those in their 20s and 30s. 
Key Point: You pay taxes now, not later. 

With a Traditional IRA, you store your grain in a barn and wait to use it later. You don’t pay taxes on the money you put in now, which can be a blessing today as it is tax deductible. However, when you retire and start taking the money out, you’ll have to pay taxes then. 

Who is it suitable for? A Traditional IRA is perfect for anyone in the peak-earning years of their careers (that is, a higher tax bracket).  
Key Point: You save on taxes now but pay later in a lower tax bracket. 

Choosing between a Roth and a Traditional IRA is a personal decision that should be made after consulting with a professional advisor who can thoroughly evaluate your situation. Both can be effective, but you need to choose the one that best fits your situation. 


Roth IRA: Pay taxes now but enjoy tax-free withdrawals after retirement. 

Traditional IRA: Delay taxes now but pay them in retirement. 

Whether you choose a Roth or a Traditional IRA, the most important thing is that you are preparing for your future. The sooner you start, the better prepared you will be. 

When it’s time to roll over a 401(k) or open a new IRA, we invite you to consider retirement account options offered by Lutheran Church Extension Fund (LCEF). With an IRA from LCEF, you’ll be preparing for your retirement while supporting Lutheran Church—Missouri Synod ministries. It’s a win-win situation when Lutherans help Lutherans.    

This page is informational and educational in nature. It is not offering professional tax, legal, or accounting advice. For specific advice about your tax or financial situation or with your estate, please consult a qualified professional advisor. 

LCEF is a nonprofit religious organization; therefore, LCEF investments are not FDIC-insured bank deposit accounts. This is not an offer to sell investments, nor a solicitation to buy. LCEF will offer and sell its securities only in states where authorized. The offer is made solely by LCEF’s Offering Circular. Investors should carefully read the Offering Circular, which more fully describes associated risks. Neither LCEF nor its representatives give legal, accounting or tax advice. Consult your tax advisor as to the applicability of this information to your own situation. UMB Bank n.a. serves as the custodian for the LCEF IRA program.