Roth IRA vs Traditional IRA
- Matt Erickson
- Jan 29, 2025
- 2 min read
Updated: Feb 25
Hello again! I am back this week to go into a little more detail on why I usually recommend a Roth vs Traditional IRA, as I mentioned in last week’s blog on how to prioritize your retirement contributions. We have put together a pretty detailed chart for your reference on the similarities and differences between a Roth and a Traditional IRA, but there are a few things that I want to point out. They are not necessarily obvious just reading the chart, but they are very important.
Roth IRA
A Roth IRA (Individual Retirement Account) is a type of retirement account where your investments grow tax-free. One major point of flexibility is that your contributions to your Roth IRA can be withdrawn at any time without tax or penalty. After you turn 59½ and the account has been open for at least five years, you can withdraw both contributions and earnings without owing any additional taxes or paying penalties. Lastly, one of the greatest benefits when compared to other retirement accounts is that they do not have required minimum distributions (RMDs) during the account holder's lifetime, which is not the case with a Traditional IRA. Roth IRAs do, however, have income limits for eligibility, which may prevent some individuals from contributing.
Traditional IRA
A Traditional IRA is a retirement account that allows you to make tax-deductible contributions in the year they are made. Your contributions grow tax-deferred, meaning you won’t pay taxes on them until you withdraw them during retirement. When you take distributions, they are taxed as ordinary income. You can begin taking distributions at age 59½ without penalty, but, as of 2023, you must begin taking required minimum distributions (RMDs) by age 73.
My Recommendation
Between the two, I recommend the Roth IRA for those who qualify because it gives you more flexibility overall. With the Roth IRA, your contributions have already been taxed, you can withdraw your contributions at any time without additional tax/penalty, and there are never any RMDs later. And, again referring back to my last post on retirement savings, the reason I recommend an IRA as part of your retirement plan is because whether you choose a Roth or Traditional IRA, there is a tax benefit, and I don’t know anybody who does not want to pay less taxes!
Check out the charts at the bottom for additional details and feel free to email me with your questions. If you're ready to keep learning about how to maximize your retirement investments, head on over to my next post detailing what I recommend you do with your old 401k.
Sincerely,
P.S. If you are reading this blog on a smaller screen and the charts are difficult to read, click the PDF version below that you can save for later.
