When it comes to retirement planning, deciding between a Roth IRA and a traditional IRA can be difficult. Ask the Experts: Roth vs. Traditional IRA is a video featuring Certified Financial Planner® Matt Frankel and Fool.com contributor Travis Hoium, who discuss the differences between these two types of retirement plans.
In essence, a traditional IRA is a tax-deferred account, meaning you don't pay taxes on the income you put into it. However, when you withdraw money from the account in retirement, you have to pay taxes on the income. A Roth IRA, on the other hand, allows you to invest money that has already been taxed, and you don't have to pay taxes on the income when you withdraw it in retirement.
John is an example of someone who has both types of retirement plans. His Roth IRA had a balance of $203.4K as of October 31, 2022, while his traditional IRA had a balance of $57.2K. October's income for the Traditional IRA and Roth IRA were up $3,000 and $7,000, respectively.
When deciding between a Roth and traditional IRA, it's important to consider your current income, tax rate, and future plans. If you expect to earn more income in the future, a Roth IRA may be a better option, as it allows you to pay taxes on your income now and avoid tax payments in the future. If you're in a lower tax bracket now, a traditional IRA may be a better option, as you can defer taxes until retirement.
It's also important to consider the fees associated with each type of retirement plan. Traditional IRAs often have higher fees than Roth IRA, and some funds may charge additional fees for certain invest. It's important to research the fees associated with each type of IRA to make sure you're getting the best deal.
Ultimately, deciding between a Roth and traditional IRA is a personal choice that requires careful consideration. Before making a decision, it's important to research the fees, tax implications, and potential returns of each option to make sure you're making the right decision for your retirement.
