Saving for retirement is important, and someone making the most of the savings they're able to set aside will make a huge difference in how comfortable their retirement is. The federal government offers many tax-favored retirement savings vehicles, and one of the most popular is the IRA.
One question millions of people face every year is whether to use a traditional or Roth IRA. Each one has its advantages and disadvantages, but there are several reasons why the traditional IRA can be better than a Roth IRA. Here are three advantages of traditional IRAs over Roth IRAs that may apply to individual's financial situations.
1. Traditional IRAs offer a tax break right now
The No. 1 reason why many people put money into IRAs is because they need a last-minute tax break. Contributing to a traditional IRA is one of the only ways someone can reduce the amount of tax they owe after the end of the tax year, because they're allowed to contribute toward their 2017 tax year limits through the tax filing deadline of April 17, 2018.
For most taxpayers, contributions to a traditional IRA are tax-deductible for the tax year to which they allocate them. With limits of $5,500 for those under 50 years old and $6,500 for those 50 or older, maxing out a traditional IRA can save someone hundreds or even thousands of dollars on their taxes right now, depending on their tax bracket. Often, the tax break can let someone save even more toward retirement, boosting the size of their nest egg and giving them a positive incentive to keep contributing. Roth IRA contributions aren't tax deductible, and so they don't offer that upfront nudge to tell someone they're doing the right thing.
2. Someone can always contribute to their traditional IRA
The only requirement to contribute to a traditional IRA is having earned income from a job or other work. With Roth IRAs, on the other hand, there are income limits above which you're not allowed to contribute anything at all toward your retirement. For instance, someone who is single and has income above $135,000 in 2018, won't be allowed to make a Roth contribution this year.
There are income limits that apply to traditional IRAs, but they only determine whether a contribution will be tax-deductible or not if someone or their spouse is covered by an employer retirement plan. A person can always make a contribution, and that clears up some uncertainty that can make it more challenging when working with a Roth IRA.
3. Wait to pay Lower taxes in retirement
For workers in their prime earning years, the biggest advantage of the traditional IRA is that it gives them the ability to avoid paying tax when they're in a high tax bracket and instead wait to pay tax until they're in a lower tax bracket in retirement. Once they hit age 59 1/2, they can start taking IRA distributions without penalty, and that gives them the power to decide when they'll pay taxes on their retirement money. Spreading out taxable income throughout their retirement will often result in paying less in overall tax, leaving them with more after-tax money to spend after they've retired.
The flip side of the argument
Don't take these reasons as arguments that Roth IRAs are useless. Roths have a lot going for them, and as Fool personal finance guru Maurie Backman notes in this article, someone can get tax-free income in retirement and greater access to their money over the course of their career in a Roth than traditional IRAs typically offer. Yet I'd still say that with retirement savings, someone shouldn't want access to that cash until it's time to retire, and since I plan to tap my IRAs to spend during retirement, rules about required minimum distributions aren't a major concern for me or for many aspiring retirees.
IRAs are a great way to save for retirement, and traditional IRAs in particular have some great advantages over alternatives. Individuals shouldn't wait another day to make the most of their retirement savings opportunities with an IRA.
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