Roth IRAs offer tax-free withdrawals for Future You. But if you’re struggling to save, taking a tax deduction for contributions to a traditional IRA now might be just the thing to get your retirement savings on track. Please read all the drawbacks of the Roth IRA to remain unbiased. You can contribute to a Roth IRA if you’re in the federal marginal income tax bracket of 24% or below.
But there are strong arguments why you shouldn’t contribute to a Roth IRA. Thanks to all the wonderful feedback over the years, I’ve been less dogmatic about the drawbacks of the Roth IRA. People should diversify their retirement savings for tax reasons. However, be aware of the higher taxes under the new government.
One obvious disadvantage of the Roth IRA is the non-tax-deductible contributions. However, this can be offset by tax-free distributions, particularly if the future marginal tax rate is expected to be above the current marginal tax rate. Since the Roth IRA does not offer a tax deduction for contributions and is tax-free during the sales phase, the RMD restriction is no longer required for a Roth IRA. If you have a choice between NOT SAVING or saving for your future through a Roth IRA, the answer is, of course, that you should open a Roth IRA instead of wasting your money on stupid things that depreciate in value.
Roth IRAs offer many benefits: tax-free growth, tax-free withdrawals in retirement, and no required minimum distributions (RMDs) as long as the owner of the IRA is still alive. And if the choice is between a traditional IRA and a Roth IRA, choosing the traditional IRA is undoubtedly the way to go. You make Roth IRA contributions with after-tax dollars, so you don’t get the tax breaks that traditional IRAs offer up front. Contributions are tax-deductible for a traditional IRA but not for a Roth IRA, but withdrawals from a traditional IRA are taxed, while those from a Roth IRA are tax-free.
Although the Roth IRA is an important tax-advantaged retirement account, there are also drawbacks of the Roth IRA that are rarely discussed. At least with these, you have exactly the same growth opportunities as an IRA if you had the same positions in the IRA as in your personal portfolio.
