How to choose the IRA that works best for you
When choosing between a Roth and a traditional IRA, consider the tax implications.
With a Roth IRA, you basically give up a tax break in the present in exchange for not having to pay taxes in the future. But is a Roth IRA better than the traditional option? While some argue income taxes may be higher in the future, no one can actually predict the future—so there’s no way to say for sure whether you’ll pay a higher or lower tax rate later than you would now.
“There is not a right answer,” Ford says. “Some people don’t like to hear that, but the reason why is that we don’t know what the tax rates are going to be 20 or 30 years from now. If we knew that, the math would be very clear.”
Ultimately, you do have to pay taxes at some point. But generally speaking, Ford says you should base your decision about Roth versus traditional accounts on what makes you feel the best.
Do you want to pay your taxes now and know that the amount you’ve saved is fully there for you down the road? Or do you want to see that number go as high as it can—knowing that you’ll pay income taxes on it later?
“You can’t go wrong either way,” Ford says. “The difference between Roth and traditional is not that big of a deal. What is a big deal is the fact that you’re going to put money into one of these things—pick one of them and do it and max it out.”