A Traditional IRA will provide a qualifying investor with the tax deduction up front and the account’s growth will be tax deferred. However, after age 59 1/2 when the investor is retired and takes their money out of the IRA for their expenses, they will pay taxes at their current income tax rate.
A Roth IRA works the opposite way. A qualifying investor pays the taxes today, just like they would if the money was spent on anything else. The investment still grows tax deferred like a Traditional IRA. When taking the money out in retirement, after age 59 ½, and the account being open a minimum of five years, the growth is not taxed.
Now that we have the basics, let’s review how to choose which will be the right fit for you. You’ll notice above that you have to qualify for either IRA. With a Traditional IRA, there are some conditions which must be met: you cannot have a retirement plan at work available, make over a certain amount of money, and take a tax deduction. With a Roth IRA, you have to make under a certain amount of income to contribute. I recommend speaking with your tax professional to make sure you qualify for these accounts before considering which to fund. This may make your decision very easy if you qualify for one and not the other.
One would think the two options are the same if you are in the same tax bracket when you make the money as when you take the money in retirement. In most instances, this will not be the case. Either you will make more or less money while retired than you did while working, or the government will alter the tax brackets between now and your retirement.
Now I hope you can understand why “it depends” is the only answer that works until I know far more about your situation and likely retirement.
If you are still confused as to which to go with, there are some comprehensive advisors out there who can help you consider all of the details so you can make an educated decision.