Roth vs Traditional: Here’s exactly when to use each one (and how most US retirees get it completely wrong)

With that in mind, here’s a useful framework that can help you make the right choice.

The core difference

To make an informed decision about the right retirement account, you need to know that the core difference between the Roth IRA and Traditional IRA is the way taxes are applied.

A traditional IRA gives you a tax break today. Contributions may be deductible, which lowers your taxable income in the year you contribute. The catch: Every dollar you pull out in retirement gets taxed as ordinary income.

A Roth IRA flips the deal. You contribute after-tax dollars now and qualified withdrawals in retirement are completely tax-free, including all the growth.

Keeping this core difference in mind is essential when making your decision so as to pay the least tax on your income during both periods.

Here, your current and future financial situations will most likely determine the right timing for each type of account — and the guiding principle is:

• If your marginal tax rate is higher today than you expect it will be in retirement, use a traditional IRA.
• If your marginal tax rate today is lower than you expect it to be in retirement, use a Roth.

Sounds simple, but many Americans still get it wrong. In a 2024 survey by Clever Real Estate, 37% of respondents said they did not understand how their savings would be taxed in retirement before retiring.

The good news is you don’t have to make a difficult forecast of your future taxes alone.

A qualified financial planner can make that aspect of retirement planning much easier. Platforms like Advisor.com can help connect you with the right professionals. Their AI-powered matching tool will connect you with a qualified expert best suited for your needs based on your unique financial goals and preferences.

Finding the right advisor isn’t always easy — there’s no one-size-fits-all solution. That’s why Advisor.com lets you set up a free initial consultation, with no obligation to hire, to see if they’re the right fit for you.

Once you have the right co-pilot for your retirement planning, the next step is to consider creative ways to enhance your plan.

Enhance your IRA plan

Once you’ve covered the basics with the help of a professional advisor, the next step is to enhance your IRA regardless of structure.

Once you’ve covered the basics with the help of a professional advisor, the next step is to enhance your IRA, regardless of structure.

Opening a gold IRA with the help of Goldco allows you to invest in gold and other precious metals in physical forms while also providing the significant tax advantages of an IRA.

With a minimum purchase of $10,000, Goldco offers free shipping and access to a library of retirement resources. Plus, the company will match up to 10% of qualified purchases in free silver.