Ep 6: Should You Be Contributing to a Traditional or Roth IRA?
InvestingOn This Episode
Do you know the difference between a traditional IRA and a Roth IRA? More importantly, do you know which one is a better fit for you and your retirement savings? We'll talk about the pros and cons of each on today's show.
Takeaways
You know you should be saving for retirement, but do you know where the money should go? Does it really make that big of a difference later on? On this episode of Saving with Silverman, Mark reviews both the traditional IRA and the Roth IRA to help you understand which is better for you.
When you have a traditional IRA, whether that is in the form of a 401(k), 403(b), 457, TSP, the money is taken pre-tax. This means you get the savings upfront, and it grows taxdeferred over time. When you do have to take the money out, it’s taxed as ordinary income. The Roth works in the reverse. You pay taxes upfront and then grow, but when you take the money out it is tax-free. So, which one is for you? Depending on your age or your situation, there may be a different choice that works best.
You might be wondering, why is it that so many more people have contributed to a traditional IRA? Mark lays out some of the reasons and benefits to a traditional IRA. In the long-run, it comes down to what will be more beneficial to you.
Who should consider the Roth IRA as their first choice? Because it can be such a powerful tool, Mark suggests most people, especially young people, contribute to a Roth. But it’s important to reach out to your advisor to make sure it is the right fit.
Listen to the full episode to hear more of the ins and outs of traditional and Roth IRAs or click on the timestamps below to hear Mark’s answer to a specific question.
Let’s say you put a dollar in today, and it’s worth $3 later. With a traditional IRA, yes you’re saving taxes on that dollar but that $3 is all taxable. With the Roth, that dollar you put in is after taxes, however that $3 is tax-free. Which is a better deal?
- Mark Silverman, CFP®
The Layout
Let’s get rolling with the first episode and you can use the timestamps below to skip around to specific topics.
0:58 - What’s best, a traditional IRA or a Roth IRA?
2:54 - Why have more people contributed to traditional IRAs instead of the Roth?
3:56 - Why is a Roth IRA so powerful?
4:38 - Who should contribute to a Roth IRA?
5:13 - Who should contribute to a traditional IRA instead of a Roth?
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