Choosing between IRAs can be challenging because they both have great benefits. You can’t go wrong with either choice because of their tax breaks, but it mostly comes down to when you want to reap the benefits of the account.
Here are two things to consider when picking between IRAs.
1. Your current vs. expected tax bracket
When considering a Roth IRA or traditional IRA, it primarily comes down to your current tax bracket and where you expect your tax bracket to be in retirement. With a Roth IRA, you contribute after-tax money and receive your tax break on the back end by having your money grow and compound with tax-free withdrawals in retirement. With a traditional IRA, you get your tax benefit on the front end. Although you technically contribute after-tax money into a traditional IRA, there’s a chance that your contributions are deductible.
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As of 2022, the maximum amount you can contribute to an IRA — both Roth and traditional — is $6,000 ($7,000 if you’re 50 or older). How much of your traditional IRA contributions you can deduct depends on your income and whether you’re covered by a retirement plan by your employer.
If you are covered by a retirement plan at work, here’s how much of your contributions you can deduct: