2-Minute Money Manager: Which Is Better — Roth or Regular Retirement Plans?

Senior Couple Beach Bikes
Photo by wavebreakmedia / Shutterstock.com

Welcome to the “2-Minute Money Manager,” a short video feature answering money questions submitted by readers and viewers.

Today’s question is about saving for retirement; specifically, whether a Roth or regular IRA — or 401(k) — is the best place to put such savings.

While most financial advisers seem to favor the Roth, I’ve often wondered how they can be so sure, since the right answer to this question requires knowing things about the future that nobody can possibly know.

Watch the following video, and you’ll pick up some valuable info. Or, if you prefer, scroll down to read the full transcript and find out what I said.

You also can learn how to send in a question of your own below.

For more information, check out “Which Is Better — a Traditional or Roth Retirement Plan?” and “New Tax Rates Mean It’s Time to Rethink Retirement Strategy.” You can also go to the search at the top of this page, put in the word “Roth” and find plenty of information on just about everything relating to this topic.

And if you need anything from a better credit card to a mortgage, be sure and visit our Solutions Center.

Got a question of your own to ask? Scroll down past the transcript.

Don’t want to watch? Here’s what I said in the video

Hello, and welcome to your “2-Minute Money Manager.” I’m your host, Stacy Johnson, and this answer is brought to you by MoneyTalksNews.com, serving up the best in personal finance news and advice since 1991.

Our question today comes from Robert:

“I keep reading that (the) Roth retirement plan is the way to go, but it seems to me that it’s better to get the tax break now than to get the tax-free income later. What do you think?”

Well Robert, I’ve got three things for you.:

Thing No. 1: Roth versus regular

Let’s start by making sure we understand what Roth and regular retirement accounts are.

With regular retirement accounts, when you contribute to the plan, you get a deduction. However, when you take money out after you retire, you have to pay ordinary income taxes on it.

A Roth retirement account is just the opposite. When you fund a Roth, you don’t get a deduction. But when you take the money out, it’s totally tax-free.

Thing No. 2: Which is better?

Here’s the problem with the Roth versus traditional question: Your best choice depends on things you can’t know.

If you’re in a high tax bracket now, and you’re going to be in a zero tax bracket when you retire, then a traditional account allowing you to deduct contributions is definitely better. If you’re going to be in the same or higher tax bracket when you retire, you’re better off with a Roth.

Some people might have an idea which of these two situations they’ll likely be in, but nobody can know for sure. Tax laws change all the time. And especially if you’re young, how the heck are you supposed to estimate your retirement income, much less guess your tax bracket?

Because you can’t know the far-off future, you can’t know — at least for certain — the proper path.

Thing No. 3: You don’t have to decide

There’s no law that says you can’t have both a traditional and Roth retirement plan. Put some money in a regular and some in a Roth, and you’ll get a deduction now and establish a source for tax-free withdrawals after you retire.

Keep in mind there can be income limitations on both regular and Roth IRAs. If you’ve got a retirement plan at work and make over a certain amount, you can’t deduct a contribution to a traditional IRA. And if your income exceeds a certain amount, you can’t even open a Roth.

For 2018, the ability to fund a Roth IRA starts disappearing when your modified gross adjusted income goes past $189,000 on a joint return. When it hits $199,000, you can’t contribute to a Roth.

For regular IRAs, if you have a retirement plan at work and file jointly, you can deduct an IRA contribution If your modified gross adjusted income is less than $101,000. Over that amount, the deduction phases out and disappears when you reach $121,000. If neither spouse has a retirement plan at work, you can take the full deduction no matter how much you make.

To learn more about other filing statuses and situations, check out IRS Publication 590-A.

Hope that answers your question, Robert.

Got a question you’d like answered?

You can ask a question simply by hitting “reply” to our email newsletter, just as you would with any email in your inbox. If you’re not subscribed, fix that right now by clicking here. It’s free, only takes a few seconds, and will get you valuable information every day!

The questions I’m likeliest to answer are those that will interest other readers. In other words, don’t ask for super-specific advice that applies only to you. And if I don’t get to your question, promise not to hate me. I do my best, but I get a lot more questions than I have time to answer.

About me

I founded Money Talks News in 1991. I’m a CPA, and have also earned licenses in stocks, commodities, options principal, mutual funds, life insurance, securities supervisor and real estate.

Got any words of wisdom you can offer on today’s question? Share your knowledge and experiences on our Facebook page. And if you find this information useful, please share it!

Disclosure: The information you read here is always objective. However, we sometimes receive compensation when you click links within our stories.

Read Next
7 Ways to Save Even More at Dollar Stores
7 Ways to Save Even More at Dollar Stores

Yes, it’s possible to pay less than a buck for items from a dollar store. Here’s how.

If My Spouse Dies, Can I Get Her Social Security?
If My Spouse Dies, Can I Get Her Social Security?

If a spouse dies, will the survivor collect the other’s share in addition to his or her own?

10 Common Expenses That Have Skyrocketed for Seniors
10 Common Expenses That Have Skyrocketed for Seniors

Retirees must stretch their dollars further and further these days — no thanks to these costs.

The 5 Most Expensive U.S. States for Retirees
The 5 Most Expensive U.S. States for Retirees

If you have or expect to have a modest retirement income, you may want to avoid spending your golden years here.

9 Ways to Boost Your Home’s Curb Appeal for Less Than $50
9 Ways to Boost Your Home’s Curb Appeal for Less Than $50

These products will instantly improve your home’s curb appeal without breaking the bank.

View this page without ads

Help us produce more money-saving articles and videos by subscribing to a membership.

Get Started

Most Popular
9 Things You’ll Never See at Costco Again
9 Things You’ll Never See at Costco Again

The warehouse store offers an enormous selection, but these products aren’t coming back.

11 Things Retirees Should Always Buy at Costco
11 Things Retirees Should Always Buy at Costco

This leader in bulk shopping is a great place to find discounts in the fixed-income years.

Over 50? The CDC Says You Need These 4 Vaccines
Over 50? The CDC Says You Need These 4 Vaccines

Fall is the time to schedule vaccines that can keep you healthy — and even save your life.

Why Cloth Masks May Increase Your Coronavirus Risk
Why Cloth Masks May Increase Your Coronavirus Risk

A new study finds that wearing a cloth mask can backfire if you don’t clean it properly.

11 Household Items That Go Bad — or Become Dangerous
11 Household Items That Go Bad — or Become Dangerous

When you get the impulse to stockpile these everyday items, pay close attention to their expiration dates.

7 Ways to Boost Your Credit Score Fast
7 Ways to Boost Your Credit Score Fast

Your financial security might soon depend upon the strength of your credit score.

8 Things You Can Get for Free at Pharmacies
8 Things You Can Get for Free at Pharmacies

In this age of higher-priced drugs and complex health care systems, a trip to the pharmacy can spark worry. Freebies sure do help.

The 15 Worst States for Retirees in 2020
The 15 Worst States for Retirees in 2020

Based on dozens of metrics tied to affordability, quality of life and health care, these are not ideal places to spend retirement.

These Are the 4 Best Medicare Advantage Plans for 2020
These Are the 4 Best Medicare Advantage Plans for 2020

Medicare Advantage customers themselves rate these plans highest.

The 10 Most Commonly Stolen Vehicles in America
The 10 Most Commonly Stolen Vehicles in America

A new model parks atop the list of vehicles that thieves love to pilfer.

This Is the Cheapest Place to Buy a Used Car
This Is the Cheapest Place to Buy a Used Car

Looking for a good deal on a set of wheels? This should be your first stop.

19 High-Paying Jobs You Can Get With a 2-Year Degree
19 High-Paying Jobs You Can Get With a 2-Year Degree

These jobs pay more than the typical job in the U.S. — and no bachelor’s degree is required.

5 Ways to Get Amazon Prime for Free
5 Ways to Get Amazon Prime for Free

Hesitant to drop $119 a year on an Amazon Prime membership? Here’s how to get it for free.

3 Ways to Get Microsoft Office for Free
3 Ways to Get Microsoft Office for Free

With a little ingenuity, you can cut Office costs to zero.

5 Keys to Making Your Car Last for 200,000 Miles
5 Keys to Making Your Car Last for 200,000 Miles

Pushing your car to 200,000 miles — and beyond — can save you piles of cash. Here’s how to get there.

26 States That Do Not Tax Social Security Income
26 States That Do Not Tax Social Security Income

These states won’t tax any of your Social Security income — and in some cases, other types of retirement income.

10 Reasons Why You Should Actually Retire at 62
10 Reasons Why You Should Actually Retire at 62

If you can, here are several good reasons to retire earlier than we’re told to.

7 Surprising Features That Boost Your Home Value
7 Surprising Features That Boost Your Home Value

You can add value to your home without hiring a contractor to do expensive renovations.

5 Things That Make Life More Meaningful for Retirees
5 Things That Make Life More Meaningful for Retirees

Retirees agree: These are the things that give them purpose and fulfillment in their golden years.

View More Articles

View this page without ads

Help us produce more money-saving articles and videos by subscribing to a membership.

Get Started

Add a Comment

Our Policy: We welcome relevant and respectful comments in order to foster healthy and informative discussions. All other comments may be removed. Comments with links are automatically held for moderation.