Roth versus Traditional. IRAs or 401ks.

Roth versus Traditional. IRAs or 401ks.

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Let’s talk about Roth versus Traditional. IRAs or 401ks. An IRA is an individual retirement account not associated with your employer. A 401k is a retirement account maintained by your employer. 
A question we get all the time is: should I invest in a Tradition or Roth retirement account? A primary difference between a Roth and Traditional retirement account is the timing of the tax benefit. With a Roth, you receive the tax benefit at the end when you retire. With a Traditional, you receive the tax benefit at the beginning when you make the contribution. 
There are numerous resources on the internet to give you all of the details you could ever want on this topic, including the IRS website. In my forty years of experience, my opinion is generally Roth retirement accounts are best suited for young people. Because they have a long working life before they retire and that gives their investments time to increase substantially and that increase will not be taxable to them when they draw it out at retirement. 
Traditional IRAs and 401ks are best suited to those who are in a higher tax bracket. They will save significant tax dollars immediately and will likely be in a lower tax bracket when they retire because their income will be reduced. This usually describes mature individuals. They are in their later years of working and usually have higher incomes. Therefore, the tax savings currently are greater and the time for investments to increase in value is shorter. 
When you decide to put money in a retirement account, that is for retirement. That is not college savings, savings for a car, etc. The penalty for early withdrawal is 10% plus you pay income tax on the amount you withdraw.. As an example for a traditional IRA or 401k: if you withdraw $10,000 and you are in the 22% tax bracket, you will pay $3,200 of the $10,000 to the government. Not a good deal. 
With Traditional IRAs, you must be at least 59 and a half to avoid any early distribution penalties. However, once you reach the age of 70 and a half, you must start taking required minimum distributions. These distributions are generally 100% taxable. With a Roth IRA or 401k, there are no Required Minimum Distributions and distributions at retirement are 100% tax free. 
Since no one has a crystal ball, we don’t know what tax rates will be and both plans have some great benefits. If your tax rates are higher now, use the Traditional, however, if your tax rates are expected to be higher when you retire, choose the Roth. 
One suggestion is the hedge, use a Roth IRA or 401k when you are younger. When you mature and income has increased, you can always change to traditional to get the immediate tax savings. But talk to your CPA and investment advisor to get the best solution for you. 
As a rule of thumb, contribute more than you think you can afford to your retirement plan. Your retirement self will thank you later.