Individual Retirement Accounts (IRAs) are a key part of many retirement savings plans, but choosing between a Roth and a Traditional IRA can be challenging. Each offers unique tax advantages and contribution rules that may impact your long-term financial strategy. Understanding the differences can help you determine which option aligns with your retirement goals. 

Let’s break down the key features of each account and explore how to decide which one might be right for you. 

Understanding the Basics 

Both Roth and Traditional IRAs offer tax advantages, but they function differently: 

Tax Treatment: 

• Roth IRA: Contributions are made with after-tax dollars, and qualified withdrawals are tax-free. 

• Traditional IRA: Contributions may be tax-deductible, but withdrawals are taxed as ordinary income. 

Eligibility: 

• Roth IRA: Income limits apply to determine contribution eligibility. 

• Traditional IRA: No income limits for contributions, but deductibility depends on income and workplace retirement plan participation. 

Withdrawals: 

• Roth IRA: Contributions can be withdrawn anytime without taxes or penalties. Earnings can be withdrawn tax-free after age 59½ if the account is at least five years old. 

• Traditional IRA: Withdrawals before 59½ may be subject to income tax and a 10% penalty unless an exception applies. 

Required Minimum Distributions (RMDs): 

• Roth IRA: No RMDs during the account holder’s lifetime. 

• Traditional IRA: RMDs must begin at age 73. 

When a Roth IRA Might Be a Good Fit 

A Roth IRA may be a suitable choice if: 

• You Expect Your Tax Rate to Be Higher in Retirement 
  Since contributions are made with after-tax dollars, qualified withdrawals in retirement are tax-free. This can be beneficial if you anticipate being in a higher tax bracket later in life. 

• You Want Tax-Free Withdrawals in Retirement 
  Unlike a Traditional IRA, a Roth IRA allows tax-free withdrawals of both contributions and earnings (if certain conditions are met). 

• You Prefer No Required Minimum Distributions (RMDs) 
  Roth IRAs do not require RMDs, allowing your savings to grow tax-free for as long as you wish. 

• You Want More Flexibility for Withdrawals 
  Since contributions (but not earnings) can be withdrawn at any time without penalties, a Roth IRA provides more flexibility for unexpected financial needs. 

When a Traditional IRA Might Be a Good Fit 

A Traditional IRA may be a better option if: 

• You Expect to Be in a Lower Tax Bracket in Retirement 
  Contributions may be tax-deductible, lowering your taxable income today. If you anticipate a lower tax rate in retirement, this could lead to tax savings. 

• You Want to Reduce Your Current Taxable Income 
  If you qualify for deductible contributions, a Traditional IRA can provide an immediate tax benefit by lowering your taxable income for the year. 

• You Have No Access to a Workplace Retirement Plan 
  If you don’t have a 401(k) or similar plan through your employer, a Traditional IRA can help you build tax-deferred savings for retirement. 

• You Plan to Withdraw in Retirement When Tax Rates May Be Lower 
  Since withdrawals are taxed as ordinary income, this option may be more favorable if you expect lower income in retirement. 

Key Considerations When Choosing Between Roth and Traditional IRAs 

1. Current vs. Future Tax Rates 

• If you think your tax rate will be higher in retirement, a Roth IRA may be beneficial. 
• If you believe your tax rate will be lower in retirement, a Traditional IRA may be a better choice. 

2. Income Limits 

• Roth IRA contributions are limited based on your modified adjusted gross income (MAGI). 
• Traditional IRA deductibility may be affected by your income and workplace retirement plan status. 

3. Withdrawal Flexibility 

• Roth IRAs allow tax-free withdrawals of contributions at any time. 
• Traditional IRAs impose penalties for early withdrawals unless an exception applies. 

4. Estate Planning Goals 

• Roth IRAs can be an advantage for estate planning since they do not have RMDs, allowing assets to continue growing tax-free. 

Can You Contribute to Both? 

Yes! If you meet the income requirements, you can contribute to both a Roth and a Traditional IRA. However, the total contribution limit applies across both accounts. For 2025, the combined contribution limit is $7,000 (or $8,000 if you’re 50 or older). 

How Hamilton Wealth Advisors Can Help 

Choosing between a Roth and a Traditional IRA depends on your financial situation, tax considerations, and long-term goals. At Hamilton Wealth Advisors, we help individuals navigate retirement planning by: 

• Evaluating tax implications for each IRA option. 

• Creating a retirement savings strategy tailored to your goals. 

• Adjusting your plan as financial circumstances change. 

Our goal is to provide guidance that helps you make informed decisions about your retirement savings strategy. 

Make an Informed Retirement Savings Decision 

Selecting the right IRA can have long-term financial implications, so it’s important to consider all factors before making a choice. Whether you opt for a Roth IRA, a Traditional IRA, or a combination of both, having a solid plan in place can help you stay on track for your retirement goals. 

Contact Hamilton Wealth Advisors today to discuss which retirement savings strategy may be right for you.