Individual retirement accounts (IRAs) come in multiple forms. Two of the most common types, the Roth IRA and traditional IRA, have different income requirements, tax treatments, contribution limits, and withdrawal rules.
Knowing these disparities will help you build a retirement plan that works for you.
Income requirements for Roth vs traditional IRA
Both limit your contributions to either A) the IRS-imposed contribution limit or B) your income, if you make less than the contribution limit for the tax year.
Not sure what to invest your long-term savings in? Public Premium offers advanced company insights and metrics, plus expert guidance from Morningstar experts on how to pick the best stocks for your goals.
Get this: Uncover the Public investing apps long term portfolio, which helps you plan ahead for your golden years, lock in investments, and supplement your IRA contributions well above the IRS-imposed limits with a brokerage account. Its not tax-advantaged like a traditional IRA account, but you can work with a financial advisor or tax advisor to limit your capital gains tax liability.
So which one should you pick? The bottom line
Choosing between a Roth and traditional IRA depends on your income. If you can expect to be in a higher tax bracket when you retire, or if you want your investments to grow tax free, Roth IRAs can help you build wealth. However, traditional IRAs have their perks, so its important to make a decision based on what works for you (they dont call it personal finance for nothing!).