When planning for retirement, choosing the right savings vehicle can make a significant impact on your financial future. Two popular options are the Traditional IRA and the Roth IRA. While both help you grow your savings, they differ in tax treatment, contribution limits, and withdrawal rules.

Traditional IRA: Tax Benefits Now

A Traditional IRA is a retirement plan where contributions are made with pre-tax dollars. This means:

•  Your taxable income is reduced in the year you contribute.
•  Your money grows tax-deferred until withdrawal.
•  Withdrawals in retirement are taxed as ordinary income.
•  You generally must start taking withdrawals from your traditional IRA when you reach age 73.

Early withdrawals before age 59½ may be subject to taxes and penalties.

Roth IRA: Tax-Free Growth

A Roth IRA is an individual retirement account funded with after-tax dollars. Key benefits include:

•  Qualified withdrawals (including earnings) in retirement are tax-free.
•  No required minimum distributions (RMDs), allowing more flexibility.
•  Contributions (but not earnings) can be withdrawn at any time, penalty-free. However, Roth IRAs have income limits for eligibility.

Which One Should You Choose?

• If you expect to be in a lower tax bracket in retirement, a Traditional IRA may be better for the upfront tax break.
• If you anticipate being in a higher tax bracket in retirement, a Roth IRA could be more beneficial for tax-free withdrawals.
• If possible, diversifying between both accounts can provide tax flexibility in retirement.
• As always, refer to you tax advisor on which IRA may be best based on your situation.

No matter which option you choose, the key is to start saving early and consistently to maximize your retirement security.