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
13 Small Gadgets Under $20 That Make Life Better
13 Small Gadgets Under $20 That Make Life Better

These inexpensive electronics will make your day-to-day life a little easier — and happier.

Never Buy These 10 Things With Your Credit Card
Never Buy These 10 Things With Your Credit Card

Credit cards offer many conveniences and protections, but sometimes it’s simply smarter to keep the plastic tucked away.

9 Hidden Ways to Get More Out of Amazon
9 Hidden Ways to Get More Out of Amazon

You don’t have to be a Prime member to take advantage of these little-known perks of shopping on Amazon.

3 Tax Penalties That Can Ding Your Retirement Accounts
3 Tax Penalties That Can Ding Your Retirement Accounts

Protecting a nest egg is tough enough. Don’t make the situation far worse.

3 Ways to Downsize Your Life to Save Money, Time and Stress
3 Ways to Downsize Your Life to Save Money, Time and Stress

Downsizing can cut the bloat in your finances — and give you more free time and less stress.

View this page without ads

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

Get Started

Most Popular
7 Kirkland Signature Items to Avoid at Costco
7 Kirkland Signature Items to Avoid at Costco

Even if it seems you save a bundle buying Costco’s Kirkland Signature brand products, they may not be the bargain they appear to be.

How to Buy Gas At Costco Without a Membership
How to Buy Gas At Costco Without a Membership

The warehouse club often has some of the cheapest gas in town. Here’s how you can get it as a nonmember.

10 Things to Stop Buying If You Want a Clutter-Free Home
10 Things to Stop Buying If You Want a Clutter-Free Home

If you like to keep things simple, avoid these purchases.

A Simple Way to Silence Robocalls Today
A Simple Way to Silence Robocalls Today

A few steps can keep your phone from ringing when a spammer calls.

If You Find This Thrift Shopping, Buy It
If You Find This Thrift Shopping, Buy It

This iconic dinnerware is prized for everyday use as well as reselling for profit.

This Company Makes the Best Tires in America
This Company Makes the Best Tires in America

Driver satisfaction with tires is at an all-time high, but one brand stands out.

This Health Issue Can Hint at Dementia Years in Advance
This Health Issue Can Hint at Dementia Years in Advance

One type of pain is especially associated with cognitive decline.

Can I Switch to Spousal Social Security Benefits When My Ex Dies?
Can I Switch to Spousal Social Security Benefits When My Ex Dies?

Knowing when to claim can help you maximize benefits.

Medicare Will Not Cover These 6 Medical Costs
Medicare Will Not Cover These 6 Medical Costs

Don’t let these health care expenses catch you off guard in retirement.

Beware This Hidden Ingredient in Rotisserie Chicken
Beware This Hidden Ingredient in Rotisserie Chicken

Something foul may lurk in those delicious, ready-to-eat birds.

8 Things You Should Always Buy on Amazon
8 Things You Should Always Buy on Amazon

The giant retailer shines when it comes to these things, from basics to hard-to-find specialty goods.

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.

5 Ways to Fill Your Pantry With Free Food
5 Ways to Fill Your Pantry With Free Food

Anyone can take advantage of these resources.

Never Buy These 10 Things on Amazon
Never Buy These 10 Things on Amazon

Just because you can purchase something on Amazon doesn’t mean that you should.

7 Big Purchases You Should Never Make
7 Big Purchases You Should Never Make

Sometimes a big-ticket purchase is nothing more than a big waste of money.

5 States With the Worst Health Care for Retirees
5 States With the Worst Health Care for Retirees

All of these states are located in the same region of the nation.

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 Products You Should Never Buy Generic
5 Products You Should Never Buy Generic

Sometimes the brand-name version is clearly superior.

6 Reasons You Should Stop Hiding Cash at Home
6 Reasons You Should Stop Hiding Cash at Home

Stashing money around the house is anything but harmless.

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.