Want to be a millionaire? Come on, who doesn’t! If at the age of 25 you were to save just $100 per month and invest that money into a Roth IRA, you could have a million dollars or more by retirement!

It is never too early to start preparing for retirement. Whether you’re fresh out of college and just entering corporate America or you’ve worked for the past 40 years, it’s never too late to start creating a nest egg.

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When it comes to retirement planning options, individual retirement accounts—better known as IRAs—are some of the most popular choices. However, choosing the best fitting IRA can be tricky. You could choose traditional or Roth. Well, what’s the difference and why is one any better than the other? I mean, they’re both helping you save for the future, right? Let’s talk details.

Traditional IRAs have been around for close to half a century now. What makes this type of plan appealing to many people, especially high income earners, is the fact that all contributions up to the contribution limits–$5,500 for singles and $11,000 for married couples—are completely tax deductible! For those over the age of 50, this amount increases to $6,500 ($13,000 for married).

So I’m telling you that you can lower your taxable income just by being responsible and planning for your retirement?! Well yes, but the IRS has to get their money at some point.  If you choose the route of a traditional IRA, you can save on taxes now, but you will have to pay taxes on that money upon withdrawing it during your golden years. At that time, your income tax bracket may be higher or lower, depending on your income.

Also, a traditional IRA requires its owner to begin withdrawals by age 70.5 if they are not already doing so. If you need some extra cash and dip into your traditional IRA before 59.5, you’ll be hit with a 10% early withdrawal penalty.

Ok, so we’ve talked about traditional IRAs, but we also mentioned Roth IRAs. What’s the difference? Unlike traditional IRAs, Roth IRAs haven’t been available all that long, making their debut only 11 years ago back in 2006. The major difference between traditional and Roth IRAs is the taxation aspect. Roth IRA contributions are made after tax. This means that you pay taxes on all of the money you are contributing before it goes into the IRA. However, this is good news for your retirement years. Since you already paid taxes on that money in your Roth IRA, the money can grow tax free. That means that during your golden years, you can not only withdraw the money that you contributed tax-free, but also all the money that grew in the account over the years can also be withdrawn tax-free. Now that’s true tax savings!

To be eligible to make Roth IRA contributions however, you have to meet the income limits. If you make more than $118,000 as a single filer or $186,000 as married filing jointly, your maximum contribution amount will slowly begin to phase out. Making more than $133,000 by yourself or $196,000 with your spouse? You won’t be eligible for a Roth IRA anymore. The contribution limits are the same as those discussed for the traditional IRAs above.Piggy Bank Savings

So ultimately, which choice is better? To be honest, it really depends on your personal situation. If you are in a very high tax bracket now and expect to be in a lower income tax bracket upon retirement, the traditional IRA would be a better option for you since it could provide an immediate tax benefit. However, if you are in a low income tax bracket now and expect to be in a much higher bracket upon retirement, a Roth IRA would be the better option. Roth IRAs have so many other attractive benefits that we will discuss in more detail in the coming weeks—funding college, funding the purchase of your first home, and more. Be sure to stay tuned to our blog so you don’t miss out!

If you want to learn more about which IRA option is best for you, Wealth Builders CPAs and Consultants can help! Really, it all comes down to financial planning and knowing how to make your money work for you. If you are like many people, this may be a little out of your comfort zone. You’ve come to the right place. Financial and retirement planning are one of our specialties here at Wealth Builders CPAs and Consultants. Let our experienced team help you determine the best personal financial planning choices for your individual needs so that you can enjoy a comfortable retirement.


Gallegos, Demetria. “Roth VS Traditional IRA: Study Finds A Clear Winner.” The Wall Street Journal, 11 June 2017, www.wsj.com/articles/roth-vs-traditional-401-k-study-finds-a-clear-winner-1497233040. Accessed 11 Sept. 2017.

Moss, Caroline. “Suze Orman: This Is the One Thing You Should Do Right Now to Retire a Millionaire.” CNBC, 21 July 2017, 8:15 AM, www.cnbc.com/2017/07/20/suze-orman-reveals-how-you-retire-a-millionaire.html.

Rossman, Sean. “When Is A Roth IRA Better For You Than A Traditional IRA?” USA Today, 6 Mar. 2017, www.usatoday.com/story/money/nation-now/2017/03/06/roth-traidtional-ira-investing-taxes/97279898/. Accessed 11 Sept. 2017.

Roth, Allan. “IRA Basics: Fund Your Future.” AARP, 22 Mar. 2017, www.aarp.org/money/investing/info-2017/ira/basics/roth/ira/vs/traditional/ira/ar.html. Accessed 11 Sept. 2017.