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Any time you begin a new investment journey, decisions must be made. So much information is thrown your way that it takes time to sort everything out. If you’re considering a traditional IRA or Roth IRA, we’ve simplified the process for you by compiling the six most important questions you should ask yourself before determining which type of IRA will best serve your interest. Once you’ve worked through the questions, you should know which is right for you.
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1) Do I earn too much to contribute to a Roth IRA?
If your income is too high to contribute to a Roth IRA, a traditional IRA is still an option.
2) Do I earn too much to take the full allowable tax deduction on a traditional IRA?
If you’re leaning toward a traditional IRA for the immediate tax deduction, make sure that your income makes you eligible.
|
Tax Filing Status |
2025 Modified Adjusted Gross Income |
Allowable Deduction |
|---|---|---|
|
Single |
$79,000 or less |
100% |
|
Single |
$79,000 to $89,000 |
Partial |
|
Single |
$89,000 or more |
None |
|
Married, filing jointly |
$126,000 or less |
100% |
|
Married, filing jointly |
$126,000 to $146,000 |
Partial |
|
Married, filing jointly |
$146,000 or more |
None |
Data source: Morningstar.
3) Do I expect to bring in more money in retirement than I currently earn?
If you add up all expected sources of retirement income and find that your annual income will be higher after retirement than it is now, you may want to reduce post-retirement taxes by investing in a Roth IRA.
4) Do I have time to meet the five-year rule if I’m considering a Roth IRA?
To enjoy tax-free withdrawals during retirement, you must meet two conditions: Be age 59 ½ or older and hold the Roth IRA account for a minimum of five years. If you’re less than five years away from retiring, you need to consider at what age you’ll begin to make withdrawals and whether you’ll be able to meet the five-year rule.
5) How do I feel about required minimum distributions?
A traditional IRA requires you to begin taking a minimum distribution (RMD) when you reach age 73 (or 75 if you were born in 1960 or later). If you want to avoid RMDs and don’t exceed the income limits, a Roth IRA may be more up your alley.
7) Is there any chance I’ll need to borrow from my IRA before age 59 ½?
A traditional IRA may allow you to make penalty-free withdrawals for specific expenses, such as higher education, unreimbursed medical expenses, and a first-time home purchase. Although you can technically withdraw contributions from a Roth IRA anytime, doing so before age 59 1/2 may result in paying taxes and penalties on earnings.
In a nutshell
It’s easy to drift into the weeds when deciding between a traditional IRA and a Roth IRA. However, the answer often boils down to whether you want to save on taxes now or would prefer to pay taxes on your contributions now and enjoy tax-free withdrawals in retirement.
|
Feature |
Traditional IRA |
Roth IRA |
|---|---|---|
|
Contributions |
Pre-tax dollars are used to make contributions. |
Contributions are made using money that has already been taxed. |
|
Income limit |
No income limit to make contributions. |
Income limits apply, and contributions are phased out at higher incomes. |
|
Tax benefit |
Reduces taxable income the year contributions are made. |
Tax-free when you withdraw the funds, provided conditions are met (you must be 59 ½ and hold the account for at least five years. |
|
Withdrawals |
Penalties are imposed for withdrawals made before age 59 ½. |
Contributions can be withdrawn at any time without penalty. |
|
Required Minimum Distributions (RMDs) |
Begin at age 73 (or 75 for those born in 1960 or later). |
RMDs do not apply during the account holder’s lifetime. |
|
Best for |
Investors seeking immediate tax benefits. |
Investors who expect to be in a higher tax bracket in retirement. |
Data source: Fidelity.
Once you determine which type of IRA offers you the best bang for your buck, it’s just a matter of working with a broker you can trust to help get you started.
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