Should I invest in a Roth IRA or regular IRA? Whiteboard Wealth #12

Both the Roth IRA and the regular IRA are great retirement savings vehicles! The question we often get is “should I invest in a Roth IRA or regular IRA?” There’s no easy answer because both accounts have great benefits. More importantly, we can’t predict the future of investment returns or tax rates.


Should you invest in a Roth IRA or regular IRA?

I created Whiteboard Wealth #12 to help point out some things which you may find beneficial in the decision of which IRA is better – the Roth or regular? First and foremost:

  • What tax bracket are you in now? If you’re paying high 20% or more marginally the pre-tax IRA may be your best bet. If you’re paying little to no taxes the Roth IRA will work out better for you in the long run.
  • What tax bracket do you expect to be in during retirement? If you’ve done your planning and feel confident your retirement tax rate will be lower than your current tax rate, the regular IRA may be your best bet. If you think your tax rates may rise the Roth IRA would be a better alternative.
  • Will your retirement income be substantial? The Roth IRA may help you smooth your taxes in retirement by using Roth assets for income once you reach certain tax brackets. This effectively allows you to keep more of your hard earned money OUT of Uncle Sam’s pocket!


How to decide which IRA is best, Roth or regular?

Since there’s no easy answers to this question it makes a great deal of sense to diversify your tax base. You diversify your investments after all right? So why wouldn’t you diversify your taxes in retirement as well?

By splitting your retirement savings between IRA and Roth IRA you’re going to have the most flexibility to keep your taxes as low as possible during retirement. For most people, this is the best strategy because you’re effectively “hedging your bets” for both current and future tax rates.