Should I Choose a Roth or Traditional IRA?
Planning for retirement can feel overwhelming, especially when deciding which type of IRA to choose. Both Roth IRAs and Traditional IRAs offer excellent tax advantages that can help you grow your nest egg, but they work very differently. The best choice for you depends on factors like your current income, your expected tax bracket in retirement, and how much flexibility you want with your withdrawals. In this post, we’ll break down the key differences between Roth and Traditional IRAs and help you figure out which one aligns with your financial goals.
An IRA is simply an Individual Retirement Account. Both the Roth and Traditional IRAs are powerful tools to be able to grow investments tax deferred until your retirement. The choice of one account over another comes down to:
Difference in Contributions: Roth contributions occur after the money has been taxed, while Traditional contributions occur before the money is taxed.
Difference in Withdrawals: Roth withdrawals are tax-free because taxes were paid before contributing, making both the principal and interest eligible for tax-free withdrawal. Traditional withdrawals are taxed when they occur since the money was never taxed initially. It's important to note that both accounts are generally not eligible for penalty-free withdrawals before age 59 1/2, with a few exceptions.
Who is Eligible: Roth IRAs have income limitations, while Traditional IRAs do not. The income threshold for full contributions in 2025 is a maximum of $150,000 a year for single filers and $236,000 a year for married filing jointly.
Maximum Contributions: Both IRAs have maximum contribution limits in a single year, which is why they often serve as a beneficial supplement to other retirement accounts, like an employer-sponsored 401(k).
There are many details to consider when determining the best retirement account for your individual situation. We encourage consulting with a financial advisor, as the "right" choice depends on your specific goals and tax situation.