I sometimes get the question which is better, a Traditional or Roth IRA? My answer is always the same, depending on the individual, both can be the better choice. Let’s look at some differences.
Traditional IRA
- You can contribute if you (or your spouse, if you file jointly) have taxable income.
- You can deduct your contributions in the year you contribute, if you qualify.
- Earnings grow tax deferred which means you do not pay taxes on them until you withdrawal the money.
- Any withdrawals prior to age 59 ½ may have a tax penalty for early withdrawal unless you qualify for an exception.
- You need to take an RMD (Required Minimum Distribution) at the age of 73 which at that time, the tax will be due.
A Traditional IRA is often good for those who expect to be in a lower tax bracket in retirement and benefit from the deduction in their working years to have taxable income.
Roth IRA
- You can contribute if you (or your spouse, if you file jointly) have taxable income.
- Your contribution is not deductible.
- There is no deduction, so withdrawals are free.
- Any withdrawals prior to age 59 ½ may have a tax penalty for early withdrawals unless you qualify for an exception.
- You do not need to take an RMD (Required Minimum Distribution) and can take withdrawals in Retirement tax free.
A Roth IRA is often good for those who expect to be in higher tax bracket in retirement but do have earned income limits. For 2025, those limits are $236,000 or more for married couple and $150,000 for single filers.
The important question to ask is “Do I have a retirement plan in place?” Whether that plan consists of a 401K, pension plan through work, or a Traditional or Roth IRA. Fund them and contribute to them in your working years, so that you can enjoy your retirement years in the manner you want to!