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Is an IRA or a Roth better for retirement planning?

IRA

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Here are the key takeaways from NerdWallet’s article “Roth vs. Traditional IRA: Which Is Right For You?”:

Core Differences Between Roth and Traditional IRAs

  • Tax Timing: Traditional IRAs offer an immediate tax deduction on contributions (subject to income and plan participation limits), but withdrawals in retirement are taxed as ordinary income. Roth IRAs, conversely, are funded with after-tax dollars, providing no upfront tax break, but qualified withdrawals in retirement are tax-free. ​MarketWatch+2NerdWallet+2Investopedia+2

  • Income Limits: Roth IRA contributions are phased out at higher income levels, while traditional IRA contributions are available to all earners. However, the deductibility of traditional IRA contributions may be limited based on income and participation in a workplace retirement plan. ​NerdWallet+1Investopedia+1

  • Required Minimum Distributions (RMDs): Traditional IRAs require RMDs starting at age 73 (increasing to 75 in 2033), whereas Roth IRAs do not have RMDs during the account owner’s lifetime.

Advantages of a Roth IRA

  • Tax-Free Retirement Income: Qualified withdrawals, including earnings, are tax-free, which can be beneficial if you expect to be in a higher tax bracket in retirement. ​NerdWallet

  • Flexible Withdrawals: Contributions (but not earnings) can be withdrawn at any time without taxes or penalties, providing flexibility for unexpected expenses. ​

  • No RMDs: The absence of RMDs allows the account to grow tax-free for a longer period, which can be advantageous for estate planning. ​

Advantages of a Traditional IRA

  • Immediate Tax Deduction: Contributions may reduce your taxable income in the year they are made, offering an upfront tax benefit. ​NerdWallet+1Investopedia+1

  • No Income Limits for Contributions: Anyone with earned income can contribute, though deductibility may be limited based on income and workplace retirement plan participation. ​Investopedia+2NerdWallet+2NerdWallet+2

Decision Factors

  • Current vs. Future Tax Rates: If you expect to be in a higher tax bracket in retirement, a Roth IRA may be more beneficial. Conversely, if you anticipate a lower tax bracket, a traditional IRA might be advantageous. ​NerdWallet

  • Need for Flexibility: If you desire the ability to access contributions without penalties, a Roth IRA offers more flexibility. ​

  • Estate Planning Goals: For those looking to leave assets to heirs, a Roth IRA’s lack of RMDs can be beneficial. ​

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