There are many choices when it comes to saving for retirement. Choosing between a Roth IRA and or Traditional IRA is one of them. The decision should be specific to your individual circumstances and is largely driven by taxes.
Here are a few key questions we ask clients to help find the best account type for their situation:
- Do you expect to be in a lower or higher tax bracket in the future?
- Can you afford to forgo the current tax deduction of a Traditional IRA and contribute to a Roth IRA, which is not deductible?
- Do you want your children to potentially inherit an account that is completely tax free?
In evaluating this decision, keep potential future tax increases in mind. Factors like the size of our national debt, budget deficits and potential for increasing entitlements like student loan forgiveness are all indications that taxes could increase. Roth IRAs insulate your financial assets from aggressive tax policy in the future and provide added flexibility in retirement planning.
Traditional vs. ROTH
|Account Feature||Traditional IRA||ROTH IRA|
|Maximum annual contribution 1||$6,000 or $7,000
||$6,000 or $7,000
|Maximum contribution age
|Tax deductible contributions 2||Possible
|Tax deferred growth||Yes||Yes|
|Minimum holding period||No||Yes – 5 years 3|
|Tax-free withdrawal||No 4||Yes|
|Early withdrawal tax penalty 5||Possible||Possible|
|Required minimum distributions||72||No 6|
|Retirement withdrawals 7||Yes||Yes|
Take control of your financial future. We’re here to support you every step of the process. Contact us to get started.