Roth vs. Traditional IRA: which should you choose?

Jul 13, 2016 | Blog, Retirement

Choosing your retirement investments can feel like picking a place to eat – there can be an overwhelming amount of options, and it can be hard to tell which one will turn out to be the best.

A frequent dilemma comes from the popular IRA investment vehicles. Although they both have “IRA” in their name, when it comes to a Roth vs. Traditional IRA, there are some significant differences.

Roth vs. Traditional IRA: what are they and what’s the difference?

The IRA stands for individual retirement account, and both of these accounts are tax-advantaged, meaning that investors can enjoy certain tax breaks if they use these accounts towards retirement properly. Both of these accounts also offer tax free-growth, and don’t require minimum distributions in retirement.

When it comes to Roth vs. Traditional IRA, many of the similarities end there, because these accounts offer differing tax advantages (among other differences not covered here):

A Traditional IRA is tax deferred. That means that the wealth you put into this account is initially tax-deductible, and then it grows tax-free.  You’re only taxed on this wealth when you take it out for retirement.

A Roth IRA is not tax deferred, but it offers the unique advantage of having a tax break when you withdraw that wealth for retirement. Your wealth is initially taxed, and then it grows tax-free and is taken out tax-free.

Roth vs. Traditional IRA: which one is better?

Unfortunately, there’s no clear winner in the battle between Roth vs. Traditional IRA. That’s because everyone has a unique tax situation and goals in retirement, and either one can have more of an advantage depending. For instance, if your tax bracket will be lower in retirement, the Roth IRA has the upside of waiting until you’re taxed at a lower rate.

Deciding Roth vs. Traditional IRA for your unique situation

At LexION Capital, we know that everyone has a unique retirement – that’s why we work individually with each of our clients to craft an investment solution to fit their situation perfectly. We’re ever mindful of your tax situation and can work closely with your accountants as well to ensure you keep as much as possible of your earnings. If you’d like to learn more about how we can help you reach a worry-free retirement, contact us today.

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