Wondering if you should invest in a Roth IRA, a traditional IRA, or both? The basic difference between a traditional IRA and Roth IRA is how and when you pay taxes on the money. Traditional IRA contributions are pretax so you will pay taxes when you take distributions. Roth IRA contributions are after tax, so withdrawals will be tax free. Unlike a traditional IRA, there are no required minimum distributions (RMDs) from a Roth IRA.
So it comes down to what tax bracket you believe you’ll be in when you begin taking your RMDs. Most of us won’t know our future tax bracket, so you may want to consider contributing to both types of retirement plans if feasible. The bottom line is to take advantage of the available retirement accounts and contribute as much as you can to reach your retirement goals. Remember the benefits of compound growth; it adds up!