These are the two most common individual retirement accounts, and the difference comes down to when you pay taxes. See the two differences for these retirement account options below.
Roth IRA
- Contributions are made with after-tax dollars
- Your money grows tax-free
- Withdrawals in retirement are completely tax-free
- No required minimum distributions (RMDs), your money can keep growing as long as you want
- Income limits apply (high earners may need a backdoor Roth strategy)
Traditional IRA
- Contributions may be tax-deductible now
- Your money grows tax-deferred
- Withdrawals in retirement are taxed as ordinary income
- RMDs kick in at age 73, and you're forced to withdraw whether you want to or not
We almost always recommend the Roth IRA over the Traditional IRA. Here's why: paying taxes now (at a known rate) beats paying taxes later (at an unknown, potentially higher rate). Tax-free growth over 20-30 years is a massive advantage, and having no RMDs gives you total flexibility in retirement.
Pro Tip: Match beats Roth beats Traditional. Always capture free employer match money first (like through a company 401k), then fill up that Roth IRA.
Next step: If you are approaching Baby Step 4, reach out to a SmartVestor Pro in your area by clicking here.