IRA vs. Roth IRA: Which Should You Contribute to Before Year-End?

As the year comes to a close, it’s the perfect time to evaluate your retirement contributions and make strategic financial decisions that could benefit your future. Contributing to an IRA or Roth IRA can provide tax advantages, but each account offers unique benefits based on your financial goals, tax situation, and future income expectations. Understanding these differences can help you make the most of your contributions before December 31.

Traditional IRA: Upfront Tax Savings

Contributions to a traditional IRA may be tax-deductible, making this option ideal if you’re looking for immediate tax savings. With a traditional IRA, contributions grow tax-deferred, meaning you won’t pay taxes on earnings until you start taking distributions in retirement. This can be especially advantageous if you expect to be in a lower tax bracket when you retire, as you’ll defer taxes until then.

However, keep in mind that traditional IRA withdrawals are subject to income tax, and required minimum distributions (RMDs) begin at age 73, ensuring that funds eventually leave the tax-deferred environment.

Roth IRA: Tax-Free Growth

A Roth IRA, on the other hand, does not offer an upfront tax deduction, but it does allow for tax-free growth and tax-free withdrawals in retirement, provided you meet certain criteria. If you believe you’ll be in a higher tax bracket later or if you want more flexibility in retirement, a Roth IRA might be the better choice.

Roth IRAs also come without required minimum distributions, meaning your money can stay in the account to grow as long as you like—ideal if you’re planning to pass down wealth.

Which Should You Choose?

Your choice between a traditional IRA and Roth IRA depends largely on your current tax situation, anticipated future tax bracket, and retirement plans. Younger investors or those with years before retirement may benefit from a Roth IRA, enjoying tax-free growth over time. However, if you’re close to retirement or are in a higher tax bracket, the tax deduction provided by a traditional IRA may be more beneficial right now.

No matter where you are in the financial planning process, making strategic retirement contributions can set you up for a stronger future. To learn more about the best IRA option for your unique situation, schedule an appointment with our office today. We’re here to provide guidance tailored to your goals, so you can make the most of your contributions before the year ends.

About the Author: Mark Roberts

In addition to managing clients’ money and giving investment and diversification advice, Mark offers something that “the other guys” don’t - a unique approach to Retirement Tax Strategies and distribution. Time and time again, Mark meets with new clients who tell him they have a great relationship with their financial advisor but have never been offered information on this kind of approach to securing their financial futures. Mark has taken this feedback to heart and works tirelessly to ensure that his strategies focus on taxes and distribution. Mark started selling insurance for a major insurance company right out of high school to help put himself through college. After graduating with a degree in finance, he dove into estate planning on the financial side to set himself apart from other financial advisors. However, as changes were made to estate tax laws over time, Mark shifted his focus to income tax strategies. Mark’s philosophy is “the blue prints are more important than the wall paper or carpet.” The wall paper and carpet represent products like investments and insurance policies, whereas the blue prints represent the strategies. Once strategies that truly fit the client’s needs are put in place, our focus can shift to providing you with the right products. According to Mark, “It doesn’t matter what carpet we use if the walls are not in the right place.” Our approach to money management is designed to generate the largest alpha (quality) with the lowest standard deviation and beta (risk). By doing this, we help provide clients with the highest return on the lowest risk. Generating income for our retirees is also very important. Because withdrawing money from your portfolio hurts the account rather than helping it, our goal is to design income strategies to harm the portfolio the least making the money last longer.

IRA vs. Roth IRA: Which Should You Contribute to Before Year-End?

IRA vs. Roth IRA: Which Should You Contribute to Before Year-End?

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About the Author: Mark Roberts