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Traditional IRA or Roth IRA: Which Is Right For You? Thumbnail

Traditional IRA or Roth IRA: Which Is Right For You?

Financial Planning Investments Retirement Funding

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:

  1. Do you expect to be in a lower or higher tax bracket in the future?
  2. Can you afford to forgo the current tax deduction of a Traditional IRA and contribute to a Roth IRA, which is not deductible?
  3. 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 IRAROTH IRA
Maximum annual contribution 1$6,000 or $7,000 $6,000 or $7,000
Maximum contribution age NoNo
Tax deductible contributions 2Possible No
Tax deferred growthYesYes
Minimum holding periodNoYes – 5 years 3
Tax-free withdrawalNo 4Yes
Early withdrawal tax penalty 5PossiblePossible
Required minimum distributions72No 6
Retirement withdrawals 7YesYes


Take control of your financial future. We’re here to support you every step of the process. Contact us to get started. 

(1) Contribution limits for 2022. Maximum individual annual contributions are $6,000 or 100% of earned income, individuals over age 50 may contribute up to $7,000 or 100% of earned income per year.
(2) Traditional IRA contributions may be deductible depending upon AGI and participation in employer sponsored plans.
(3) If you have one or multiple Roth IRA accounts, the five-year holding period begins at the beginning of the year in which you first set up and contribute to a Roth IRA. However, the holding period for an inherited Roth IRA is determined independently of any Roth IRAs held in the beneficiary’s name alone. 
(4) Any withdrawals of after-tax contributions are tax-free.
(5) Subject to the type and purpose of any withdrawal. 
(6) Applies to the original account holder.
(7) Traditional IRA withdrawals are taxed at current rates. Roth IRA withdrawals are tax-free if account meets minimum 5-year holding period and age limitation.