As most readers know, with a Traditional IRA, you can deduct your IRA contribution in the current year. However, years later you will pay tax when you withdraw funds from the Traditional IRA. With a Roth IRA, you do not get a deduction on your Roth IRA contribution in the current year. However, years later you do not pay tax when you withdraw funds from the Roth IRA.

This question requires a few introductory statements:

  • This has been a widely discussed topic over the years, with financial experts on both sides of the question. There is no universal agreement about this question.
  • Certain circumstances like age or income can make one type of IRA or the other the better choice. Consult your tax professional to see which type of IRA is best for you.
  • This post is not tax advice. As a nontax professional, these are my thoughts, based on my experiences. As one real estate investor to another, I’m sharing my perspective at the time of writing, which may be helpful as you gather questions to ask your tax professional about your unique situation.
  • The tax arena can change each year.  Another reason to consult your tax professional is to learn if the IRA rules have recently changed.

Given the above, this post is for readers who have no specific factors in their situation that clearly make one type of IRA better than the other.

And the winner is…

For most investors, a Roth IRA will be more advantageous in the long run. Here’s why:

  • Age-friendly: You can open a Roth IRA at any age. Traditional IRAs have some stipulations after a certain age.
  • Lifelong Contributions: Another age-friendly aspect of Roth IRAs is that you can contribute to your Roth IRA all your life if… you don’t make too much money. Isn’t that an awesome challenge to have–making too much money to qualify for making Roth IRA contributions? If you fall in this category, talk with your tax professional about how to use a Traditional IRA as a “back door”. As of this writing, Congress is considering changing the rules in this area so it is important to remain up to date on current legislation.
  • For everyone else, Roth IRAs are more friendly for lifelong contributions. Although the SECURE Act recently added some flexibility to Traditional IRA contributions, Roth IRA contributions allow most people to contribute the allowable amount at any age. You can contribute to your Roth IRA as long as you have earned income. And you can contribute up to 100% of what you earn, up to the annual contribution limit.

That means when you are 100 years old, fit as a fiddle, you can continue making contributions to your Roth IRA account as long as you have earned income!

  •  Required distributions: This is the first of two big whoppers that could significantly impact your savings and lifestyle during your retirement years. Traditional IRAs have Required Minimum Distributions(RMD) after 72 1/2  years old.

RMD’s creates two consequences. First, you must pay taxes on the RMD withdrawals each year.  Second, when you reinvest your RMD withdrawals… you will pay tax on your investment returns each year! Your investments with those RMD withdrawals will no longer grow tax-free!

In contrast, Roth IRA funds can remain in the account, continuing to grow tax-free, for as long as you live. How can that impact your retirement years?  Because in your 70s you may not need to withdraw your IRA funds to maintain your lifestyle. But in your 90s, because of inflation or medical bills, you might need your Roth IRA funds to help pay your bills. Those extra 20 years of keeping 100% of your Roth IRA funds growing tax-free until you really need the money could be the difference between you outliving your money or not.

High returns. This second big whopper multiplies the benefits of avoiding RMDs and it is the icing on the cake of my case for Roth IRAs.  If you enjoy consistently high returns from your investments, then a Roth IRA becomes a no-brainer. The amount of tax you pay the year you make your Roth IRA contributions will become overshadowed by the large profits you withdraw tax-free from your Roth IRA account several decades later.

Here is an example using a conservative rate of interest:

To keep the numbers simple, let’s say you are in the 24% tax bracket and you contribute the current allowable contribution of $6000 to a Traditional IRA. That contribution will be tax-deductible and you’ll save $1500 in taxes that year.

(Theoretically, IRA contributors could take the $1500 that would have been paid in taxes and add that to their savings. a) Would most people do that? b) Even if they did, that extra $1500 of savings would not grow tax-free!)

Now let’s say you contribute the same current allowable limit of $6000 to a Roth IRA. That contribution will not be tax-deductible and you will pay $1500 in taxes. So in essence, you are $1500 behind because you paid $1500 of taxes.

Fast forward 30 years in the future: Both the Traditional IRA and the Roth IRA accounts enjoy a 6% annual compound interest. After thirty years, both IRA accounts have now grown to $34,461. This tax-free, compounded growth is from just that one year, $6000 IRA contribution!

Because you are older than 59 1/2, you can withdraw funds from either IRA account without penalty.  Due to life events, you decide to withdraw all $34,461.  If your funds are in a Traditional IRA, you must pay tax on the withdrawal.  Again, keeping the numbers simple, let’s say that based on the tax laws 30 years from now, you must pay 20% tax on your traditional IRA withdrawal and pay $6000 in taxes.

If your funds are in a Roth IRA, you would not pay tax on the withdrawal and save paying $6000 in taxes. During your retirement years, when you are no longer actively working to create income, which do you think you will value more:

  • having saved $1500 in taxes during the working year when you made the IRA contribution
  • saving $6000 in taxes in during the retirement year when you are living on your retirement income?

At this point in the discussion, advocates of Traditional IRAs may ask if the $1500 in tax savings each year was invested, would those savings, after paying tax on the profits each year, offset the $6000 in tax savings when withdrawing funds 30 years later in an IRA account.


But consider the simplicity factor. Complexity is the enemy of taking action. The added complexity, uncertainties, and discipline required in that calculation (ex. investing the tax savings each year, paying tax on the profits, reinvesting RMDs) can be enough to dissuade many investors from taking those extra steps each year.

In contrast, Roth IRAs keep it simple: Contribute to your Roth IRA each year, pay the current year tax, and you are done with the tax question. Decades later, when you need the Roth IRA funds the most, long after your earning years are long past, you won’t have to pay additional taxes on your IRA withdrawals. Nobody will make you bother with RMD withdrawals each year after your 72nd birthday. Nobody will make you pay taxes when you withdraw funds from your Roth IRA. 100% of the funds in your Roth IRA account are yours, whenever you choose to take them. Simple!

All things being equal, my vote is for the Roth IRA.

If you have questions about which IRA is best for you, or how to convert your 401K into a self-directed IRA, contact the Investor Relations Team today.  Karrie, CJ, and I can help you identify questions to ask your tax professional about how to maximize the savings in your retirement accounts.

Author:  Ben Katt, Investor Relations Specialist, 937-540-4474,