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Roth or Regular: Which IRA Should You Choose?

As the end of the year approaches, smart taxpayers are looking for ways to cut their tax bills. One smart strategy involves opening an IRA, but figuring out which type of IRA is right for you can be complicated.

In the following video, Dan Caplinger, The Motley Fool's director of investment planning, looks at the question of how to pick between regular and Roth IRAs. Dan notes that only regular IRAs give you an upfront tax deduction to cut your tax bill this year, but Roth IRAs give you long-term tax benefits including tax-free treatment when you make withdrawals from your account in retirement. Dan identifies the key question as whether your current tax rate is higher or lower than your likely tax rate in retirement, with Roth IRAs being smarter if you're currently in a low bracket but regular IRAs looking better if your current tax rate is high.

Dan concludes with a look at how dividend ETFs SPDR S&P Dividend (NYSEMKT: SDY  ) , iShares DJ Select Dividend (NYSEMKT: DVY  ) , and Vanguard Dividend Appreciation (NYSEMKT: VIG  ) can help you make best use of the tax deferral from both types of IRAs. For Roths, though, high-growth stocks also make a lot of sense to take advantage of the tax-free income they offer.

Be smart with your retirement
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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On December 02, 2013, at 7:50 AM, Whaler wrote:

    I am 63 and about to retire, I have $300,000

    in my 401 work account. Should I open a Roth or a Roth IRA account with this money???

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Dan Caplinger
TMFGalagan

Dan Caplinger has been a contract writer for the Motley Fool since 2006. As the Fool's Director of Investment Planning, Dan oversees much of the personal-finance and investment-planning content published daily on Fool.com. With a background as an estate-planning attorney and independent financial consultant, Dan's articles are based on more than 20 years of experience from all angles of the financial world.

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