The Difference Between Roth and Traditional IRAs

Planning for retirement is one of the most important financial decisions you’ll make. Individual Retirement Accounts (IRAs) offer powerful tax advantages to help your savings grow over time. But when choosing between a Traditional IRA and a Roth IRA, understanding how they differ can help you make the best decision for your future.

Traditional IRA: Tax Benefits Today
A Traditional IRA allows you to contribute pre-tax dollars (depending on income and eligibility), which may reduce your taxable income in the year you contribute.
How It Works:
•    Contributions may be tax-deductible in the year they are made.
•    Investments grow tax-deferred.
•    You pay income taxes when you withdraw funds in retirement.
•    Required Minimum Distributions (RMDs) begin at age 73.

A Traditional IRA may be a good choice if:
•    You expect to be in a lower tax bracket in retirement.
•    You want to reduce your taxable income now.
•    You prefer an upfront tax break.

Roth IRA: Tax Benefits Later
A Roth IRA is funded with after-tax dollars, meaning contributions are not tax-deductible. However, qualified withdrawals in retirement are tax-free.
How It Works:
•    Contributions are made with after-tax income.
•    Investments grow tax-free.
•    Qualified withdrawals in retirement are 100% tax-free.
•    No Required Minimum Distributions during your lifetime.

A Roth IRA may be a good fit if:
•    You expect to be in a higher tax bracket in retirement.
•    You value tax-free income later.
•    You want more flexibility (such as no RMDs).
•    You’re a younger saver with time for tax-free growth to compound.

There’s no one-size-fits-all answer to which IRA is right for you. The best choice depends on your current income and tax bracket, expected retirement income, age and time horizon and estate planning goals. In some cases, a combination of both account types can provide valuable tax diversification in retirement.

Choosing the right retirement savings strategy can feel overwhelming, but you don’t have to make the decision alone. Our team is here to help you understand your options and build a plan aligned with your goals. Contact one of our affiliates, Ohnward Financial Advisor Services, Ohnward Wealth and Retirement, or Vosler Investment Group, to schedule a retirement savings review and take the next step toward a confident financial future.