Roth vs. Traditional IRA: Which One is Right for You?

Imagine two hikers preparing for a long trek. One chooses to carry a heavy pack now, knowing their journey will be easier later. The other keeps their load light at the start but expects a heavier burden later on. This is the choice between a Roth and a Traditional IRA.

Saving for retirement is crucial, but choosing the right IRA can make a huge difference in how much you keep vs. how much you give to the IRS. Should you pay taxes now or later? Let’s break down the pros, cons, and ideal scenarios for each type of account.

1. The Key Difference: When You Pay Taxes

• Traditional IRA: Pay taxes later (contributions lower taxable income now, but withdrawals are taxed in retirement).

• Roth IRA: Pay taxes now (contributions are made with after-tax dollars, but withdrawals are tax-free in retirement).

Think of it like this: Would you rather pay taxes on the seed (Roth IRA) or the harvest (Traditional IRA)?

2. Contribution Limits & Eligibility (2024)

Account Type	Contribution Limit	Income Limits (for full benefits)	Tax Treatment
Traditional IRA	$7,000 ($8,000 if 50+)	No income limits for contributions (but deductions phase out)	Tax-deferred
Roth IRA	$7,000 ($8,000 if 50+)	Phase-out starts at $146K (single) / $230K (married)	Tax-free withdrawals

📌 Pro Tip: If your income is too high for a Roth IRA, you can use a Backdoor Roth IRA to bypass the limit!

3. When a Traditional IRA is the Better Choice

✅ You want to reduce taxable income now (great if you're in a high tax bracket today).✅ You expect to be in a lower tax bracket in retirement (pay less tax later).✅ You don’t qualify for a Roth IRA due to high income.✅ You need to reduce AGI to qualify for tax credits or lower Medicare premiums.

📌 Example: If you make $120K today and expect to retire with $60K/year, a Traditional IRA lets you defer taxes at a high rate now and pay at a lower rate later.

4. When a Roth IRA is the Better Choice

✅ You expect to be in a higher tax bracket in retirement (pay tax now at a lower rate).✅ You want tax-free income later (ideal if you plan to have significant investment growth).✅ You want to avoid Required Minimum Distributions (RMDs) (Traditional IRAs force withdrawals at age 73).✅ You prefer flexibility (you can withdraw Roth IRA contributions anytime without penalty).

📌 Example: If you're early in your career making $50K but expect to retire with $150K/year, a Roth IRA locks in today’s low tax rate and provides tax-free income later.

5. Withdrawal Rules: Avoiding Penalties

Feature	Traditional IRA	Roth IRA
Taxes on Withdrawals	Yes (taxed as income)	No (tax-free if age 59½ and held for 5+ years)
Early Withdrawal Penalty	10% before 59½ (exceptions apply)	No penalty on contributions; earnings taxed/penalized if withdrawn early
Required Minimum Distributions (RMDs)	Yes (starting at 73)	No RMDs (unless inherited)

📌 Pro Tip: Roth IRAs offer more flexibility since you can withdraw contributions anytime without penalty.

6. Can You Have Both? (Yes, and It’s Smart!)

Many investors split contributions between both accounts to hedge against future tax changes:

• In low-income years: Prioritize a Roth IRA (lock in low tax rates).

• In high-income years: Use a Traditional IRA to lower taxable income now.

📌 Example: A self-employed professional with fluctuating income might contribute to a Roth IRA in lean years and a Traditional IRA in high-earning years.

Final Thoughts: Which One Should You Choose?

🚀 Traditional IRA = Pay tax later, lower taxable income today.🔥 Roth IRA = Pay tax now, get tax-free withdrawals in retirement.

Choosing between them depends on your current vs. future tax situation. If you’re not sure which strategy works best for you, let’s talk—https://www.glavinicfs.com/bookandrew.