As a member of the workforce, one of the most important things you can do is build your individualized retirement account (IRA). After all, in order to enjoy your golden years, you need the resources possible to make that happen. This leads to a well-debated dynamic: the merits of a Roth IRA vs. a traditional IRA. If you’re still unsure of how to save for your future, we can guide you through it! Here’s how to determine the best option for you.

What is a Roth IRA vs. a traditional IRA?

Before we get into making selections, let’s first start with just what Roth and traditional IRAs are. Simply put, Roth IRAs are built from post-tax money. This can be helpful, especially if you anticipate a rise in tax rates, as it’s tax-free.

Traditional IRAs, on the other, hand are tax-deferred. So, while you cannot escape paying taxes, you can control the amount of money on which you’re taxed. This depends on how much you withdraw at a time, meaning that your taxes are determined by the money you remove from your traditional IRA account.

Benefits of a Roth IRA

There are many benefits that make a Roth IRA worth the consideration. They include:

  • Maximizing your savings through tax advantages;
  • The peace of mind of paying taxes beforehand;
  • The ability to save more money even as you shift income brackets;
  • Tax-free dispersal of money from the account;
  • The possibility of saving money due to a potentially lower current tax rate; and
  • Mitigating potential issues with required minimum distributions (RMDs).

If you’re looking to take advantage of lower tax rates—and the ability to succeed as tax rates increase—this option is ideal for you. It also can help provide comfort as the years go by, as the mere thought of taxes can cause anxiety. Luckily, the Roth IRA remains an incredibly viable option!

Benefits of a Traditional IRA

For other people, a traditional IRA might prove preferable. Here are the advantages that it offers:

  • The potential to maximize your earnings over a longer period of time;
  • The ability to increase the amount you can contribute to your 401(k), meaning that your employer’s match of your savings can also increase; and
  • The opportunity to more closely estimate and control the amount of taxes you’re expected to pay.

Ultimately, this makes a traditional IRA more suitable for those who are still fairly fresh in the work force. It allows them to make the best use of the years they have to come in earning income. It’s also helpful for those who anticipate a downward trend in spending as they reach retirement age. Finally, for those with generous employers offering 401(k) matching, this option merits consideration.

Conclusion

When it comes to determining the merits of a Roth IRA vs. a Traditional IRA, you ought to remember that this approach should be highly-individualized. Make sure that you’ve thought about your goals, career path, years left in the workforce, and of course just how taxes will affect you. This will help you determine which advantages—and disadvantages—make your choice worth it.

Want to maximize your savings in a money-protected fund? Give the expert investors at Ty J. Young Inc. a call at 877-912-1919. Additionally, if you want to learn more about how to improve your nest egg, continue to follow our Retirement You Earned blog.

RetirementYouEarned.com
Posts from the Ty J. Young Inc. team of advisors and leaders.

Leave a Reply