Is a Roth or Traditional IRA Better?

The question that every person asks when assessing their financial future: Traditional IRA or Roth IRA? A summarized answer is easy, but a deep dive comparison will solidify your choice. In general, if you believe your tax rate will be higher at retirement than it is right now, you should opt into a Roth IRA. If you believe your tax rate will be lower at retirement than it is right now, a Traditional IRA is best. Read the four main differences between the two IRAs below to understand why that is.

Choosing Between a Roth or Traditional IRA

Contribution Limits: Roth or Traditional IRA

Roth: Limits for a Roth are based on household income, and those with higher income likely don’t qualify either partially or completely to contribute.

Traditional: The sky (or your budget) is limit with traditional; however, your income may limit how much you can deduct for tax purposes.

If you’re contributing to both, you cannot exceed $5,500 or $6,500 if you’re 50 or older.

Early Withdrawals

Sage advice: don’t withdraw from an IRA early. However, sometimes you must, and regardless, you should the rules that apply.

Roth: The more financially friendly of the two, no fees or taxes apply when you withdraw from a Roth early; however, any earnings withdrawn before your first contribution is 5 years old may be subject to a 10% penalty and taxes.

Traditional: You’ll accrue a 10% penalty in addition to taxing the withdrawn money as income as your current tax rate; if you do the math, that’s a lot of lost change.

Required Minimum Distributions

Roth: There are no required minimums with a Roth IRA (unless you inherit it, which has its own set of rules). Your Roth IRA can grow for as long as you’d like. This is also the best type of IRA to pass on to your heirs and beneficiaries.

Traditional: When you turn 70 ½, you are required to start taking minimum distributions. If you don’t necessarily need to withdraw money, this may be a less appealing option, as once you start taking distributions, you stop saving and start being taxed; you can no longer contribute to a traditional IRA after this age.

Taxes for Roth or Traditional IRA

The big factor: taxes. Both kinds of IRAs are great ways to save for retirement as far as taxes are concerned. The difference between them lies in the how and when.

Roth: The main tax advantage is that you will not be taxed on your withdrawals in retirement.

Traditional: The main tax advantage is that your contributions are tax deductible.

So will it be taxes upfront or postponed? A common sense answer to our general advice notes that there’s no real way to know what tax bracket you’ll be in at 65. If you feel the unknown is too strong, consider contributing to both a Traditional and Roth; you can easily do so as long as you don’t exceed the limits set by the IRS. Whether you choose one or the other, or both, there’s no wrong way to go when you save for retirement. Consider your income history and trajectory, and consult your tax professional before diving into a decision.


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