Choosing the right retirement account can be a daunting task, especially with so many options available. Two popular options are the Roth IRA and the traditional IRA, both of which offer tax advantages and long-term savings opportunities. Deciding between the two comes down to how much you earn and your projected income in retirement.
The IRS has adjusted 2023 retirement account rules on who can contribute to a Roth IRA and who gets a tax deduction for traditional IRA contributions. For example, in 2023, individuals with a modified adjusted gross income of $140,000 or more will not be able to contribute to a Roth IRA. On the other hand, those who earn less than $76,000 (single filers) or $125,000 (married couples filing jointly) will be able to take a full tax deduction for traditional IRA contributions.
Each type of IRA has its own advantages, and saving in one rather than the other may be a better move. Roth IRAs offer tax-free withdrawals in retirement and no required minimum distributions, while traditional IRAs offer an upfront tax deduction and potential tax savings in the present.
If you're funding your retirement account outside of work, you'll decide between a Roth vs. a traditional IRA. We'll make the choice simple by breaking down the key differences between the two.
You can contribute to both a Roth IRA and an employer-sponsored retirement plan, such as a 401(k), Simplified Employee Pension (SEP), or Savings Incentive Match Plan for Employees (SIMPLE). However, there are income limits and contribution limits to consider.
Unlike 401ks, which are a means of saving for retirement afforded to you by your employer, IRAs are opened by an individual through a broker or financial institution. This gives you more control over your retirement savings and investment options.
Considering a Roth IRA vs. a traditional IRA? Learn how they work, how they're different, when it makes sense to open one versus the other, and what to keep in mind as you make your decision.
IRAs are retirement savings accounts that hold investments you choose — anything from stocks and bonds to ETFs and real estate. You'll want to consider your risk tolerance, investment goals, and timeline when choosing which investments to include in your IRA.
As you compare Roth vs. traditional IRAs, you should know that this isn't an either-or equation. Both can be leveraged to increase your retirement savings, and you can even convert from one type to the other under certain circumstances. It's important to do your research and consult with a financial advisor before making any decisions.
Overall, the decision between a Roth IRA and a traditional IRA will depend on your personal financial situation and retirement goals. Take the time to weigh the pros and cons of each, and consider seeking professional advice to make the best choice for your future.
