Traditional IRA vs. ROTH IRA: Which is better?

[KarenL]

Which is better depends on your financial goals, income, and tax situation. While nobody can predict future tax laws, we have a fairly good understanding that more income usually means higher tax rates. For tax planning you should consider your current income and your expected income after you retire. Assuming you qualify, choose a ROTH IRA if you’re good with taking a known “tax hit” now for tax-free income later. Choose a Traditional IRA, if you think your income will be less at retirement as it could be a strategic tax planning option. Maybe the answer is to have both to better mitigate the unknown future! 

ROTH IRA: Your contributions are made with after-tax dollars for the benefit of receiving tax-free growth (as long as you follow the “5-year rule” and are 59 ½ or older). 

Traditional IRA: While you'll likely get a tax deduction for your contributions, if you're covered by an employer plan at work, you must fall within certain income ranges to do so. Taxes are deferred until you take a distribution, then you’re taxed on the growth (and the amount you were able to deduct, if any).

• Should You Contribute to a Roth IRA, Traditional IRA or 401(k)? - A great place to start to understand the differences between common retirement plans!
• What are IRA conversions and recharacterizations? - Terminology with a little tax strategy built-in.
• Roth IRA Conversions (Converting IRA to Roth IRA) - Great explanation of how it works and potential benefits.
• Where do I enter my traditional or Roth IRA contributions? - Guidance for entering contributions and distributions too!
• How do I enter a backdoor Roth IRA conversion? - For higher income earners - a bit of an explanation and how to enter it into TurboTax.

BONUS: IRA Tax Benefits: Taxes on Retirement vs. Non-Retirement Accounts

If you need tax advice or have questions that aren't answered in the links above, please ask in our Taxes forum that best fits your needs!