IRA or Roth: Which is Better for Retirement Savings?

When it comes to saving for retirement, there is often confusion around whether it is better to utilize a traditional or Roth IRA. For 2025, individuals can contribute $7,000 annually to an IRA, with an additional $1,000 if they are over age 50. These contributions must come from earned income and are separate from employer-sponsored plan limits (401k 403b, etc).



A traditional IRA allows individuals to deduct contributions for their adjusted gross income, reducing their tax liability for the year. However, taxes are paid upon withdrawal, and higher earners may be ineligible for this deduction. Moreover, they will have required minimum distributions (RMD) at age 72-75 (depending on your date of birth). Roth IRAs, on the other hand, require contributions to be taxed up front, but offer tax-free growth and withdrawals after age 59½. High earners may not qualify for direct Roth IRA contributions.

Key considerations for choosing between a traditional or Roth IRA include:

1. Tax Bracket Now vs. Retirement: If you are in a high tax bracket now and expect to be in a lower one in retirement, a traditional IRA may be beneficial since it defers taxes until withdrawal. If you're in a lower tax bracket now and expect to be in a higher one later, paying taxes now with a Roth IRA may be advantageous.

2. Tax Impact for Heirs: Traditional IRAs may not be ideal for heirs, as new RMD policies require heirs to deplete the account within 10 years, potentially pushing heirs into a higher tax bracket. While inherited Roth IRA’s do have RMD’s, they are usually tax free to the heir.

3. Other Retirement Income: Consider your other income sources in retirement, such as pensions or annuities. If these sources are taxable, combining them with traditional IRA withdrawals could push you into a higher tax bracket. Roth IRAs may be more favorable in this case to avoid extra tax burden.

While these are important considerations to make, it’s essential to evaluate your specific situation. If you would like to learn more about this strategy for your particular situation, please contact us.