To save for retirement, should you be using a traditional IRA or a Roth? Does it matter? What’s the difference between the two?
Below, we’ve broken down the key differences between two of the most common retirement accounts available in the US:
As with most things personal finance, there’s no one, clear “winner” between the two. It depends on you and your individual situation. For most people whose income allows them to have this option, it usually comes down to a tax-related question: Do you think you’re in a higher tax bracket now than you will be when you retire, or do you anticipate jumping a bracket or two by retirement age?
If you’re earning more now, you might be better served with a traditional IRA, since you’ll be paying taxes down the road; if you expect to earn more in the future, you might be better served with a Roth, since you pay taxes today.
You could hedge your bets and contribute to both. But if you do that simultaneously, remember the $5,500 annual limit applies to all retirement accounts. Using both doesn’t mean you can store $11,000.
You may want to read more on:
- Taking distributions after inheriting a Roth IRA
- The effect of using both a 401(k) and traditional IRA at the same time on your taxes
- Traditional and Roth IRAs overall
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