Roth IRA vs Traditional IRA: Complete Guide

Key Differences

| Feature | Traditional IRA | Roth IRA | |---------|----------------|----------| | Tax Treatment | Deduct now, pay later | Pay now, tax-free later | | Contributions | $7,000 (under 50), $8,000 (50+) | Same | | Income Limits | No limit to contribute | $161k single, $240k married | | Age Limit | None | None | | RMDs | Yes at 73 | No RMDs ever | | Early Withdrawal | Taxed + 10% penalty | Contributions anytime, tax-free |

When Traditional IRA Makes Sense

✅ You're in high tax bracket now (24%+) ✅ Expect lower bracket in retirement ✅ Want tax deduction today ✅ Need to reduce current taxable income

When Roth IRA Makes Sense

✅ You're in low tax bracket now (12% or less) ✅ You're young with decades of growth ahead ✅ You expect higher bracket in retirement ✅ You want tax-free growth ✅ You want no RMDs

Contribution Strategies

The '50-50 Split'

Contribute to both:

• Traditional: $3,500
• Roth: $3,500

Hedges against future tax uncertainty

The 'Backdoor Roth' (High Earners)

1. Contribute to non-deductible Traditional IRA
2. Immediately convert to Roth
3. Pay taxes on gains (if any)

The 'Tax Bracket Optimization'

• Fill up 12% bracket with Traditional IRA
• Put rest in Roth IRA

Common Mistakes to Avoid

❌ Not contributing because you can't max out ❌ Forgetting about spouse IRA ❌ Missing Backdoor Roth opportunity ❌ Not considering Roth conversion in low-income years ❌ Withdrawing earnings before 59½ from Roth