Overview
Both Roth IRAs and Traditional IRAs help you save for retirement with tax advantages, but they work in opposite directions. A Roth IRA taxes your contributions now so withdrawals in retirement are tax-free, while a Traditional IRA gives you a tax deduction today and taxes withdrawals later.
Use the Roth IRA Calculator to project your tax-free retirement balance, and the IRA Calculator to see how upfront deductions affect your long-term savings.
Key Differences
**Tax timing:** Roth IRAs use after-tax dollars now; Traditional IRAs deduct contributions from taxable income today.
**Withdrawal rules:** Roth contributions can be withdrawn penalty-free anytime. Traditional IRA withdrawals before age 59 1/2 incur a 10% penalty plus income tax.
**Required minimum distributions:** Roth IRAs have no RMDs during the owner's lifetime. Traditional IRAs require distributions starting at age 73.
**Income limits:** Roth IRAs have income eligibility caps. Traditional IRAs allow anyone with earned income to contribute, though the deduction may phase out.
**Best for:** Roth favors those who expect a higher tax bracket in retirement. Traditional favors those in a high bracket now who expect to drop later.
When to Use the Roth IRA Calculator
- You are early in your career and expect your income (and tax rate) to rise significantly - You want tax-free withdrawals in retirement for maximum flexibility - You want to avoid required minimum distributions and leave a tax-free inheritance - You have already maxed out your 401(k) and want additional tax-advantaged growth - You are under the income limit and want to lock in today's lower tax rate
When to Use the Traditional IRA Calculator
- You are in a high tax bracket now and want to reduce this year's tax bill - You expect your income to be significantly lower in retirement - You do not qualify for Roth IRA contributions due to income limits - You want to maximize the immediate tax benefit of your retirement savings - You are self-employed and looking for deductible retirement contributions
Frequently Asked Questions
Q: Can I contribute to both a Roth IRA and a Traditional IRA? A: Yes, but your combined contributions cannot exceed the annual limit ($7,000 in 2024, or $8,000 if you are 50 or older).
Q: Which IRA is better if I do not know my future tax bracket? A: Many advisors suggest splitting contributions between both types to hedge against tax-rate uncertainty.
Q: Can I convert a Traditional IRA to a Roth IRA? A: Yes, through a Roth conversion, though you will owe income tax on the converted amount in the year of the conversion.
Q: Are there penalties for early Roth IRA withdrawals? A: You can always withdraw your contributions penalty-free. Earnings withdrawn before age 59 1/2 may be subject to taxes and a 10% penalty.
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