The Roth vs Traditional IRA debate is one of personal finance's most important decisions. The difference comes down to when you pay taxes: now (Roth) or later (Traditional).
Traditional IRA - Contributions may be tax-deductible (reduces taxable income now) - Investments grow tax-deferred - Withdrawals in retirement taxed as ordinary income - Required Minimum Distributions (RMDs) start at age 73 - Best for: people in high tax brackets now who expect lower rates in retirement
Roth IRA - Contributions made with after-tax dollars (no deduction) - Investments grow completely tax-free - Qualified withdrawals in retirement are 100% tax-free - No RMDs during your lifetime - Contributions (not earnings) can be withdrawn anytime without penalty - Best for: people who expect to be in a higher tax bracket in retirement, or those who value flexibility
2024 Contribution Limits - $7,000/year (under 50) or $8,000/year (50+) - Roth income limits: single filers phase out at $146,000-$161,000; married at $230,000-$240,000
The Backdoor Roth If you exceed the income limit, you can still contribute to a non-deductible Traditional IRA and then convert it to Roth (the "backdoor Roth"). Consult a tax professional if you have existing Traditional IRA balances.
General Rule of Thumb If you're in the 22% bracket or below, lean Roth. If you're in the 32%+ bracket, lean Traditional. If you're unsure, split contributions between both.