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!

Find the right financial adviser

Finding a financial adviser you can trust doesn't have to be hard. A great place to start is with SmartAsset's free financial adviser matching tool, which connects you with up to three qualified financial advisers in five minutes. Each adviser is vetted by SmartAsset and is legally required to act in your best interests.

If you're ready to be matched with local advisers who will help you reach your financial goals, get started now.

Read Next
12 Easy Ways To Make Make Money Online Without Leaving Home
12 Easy Ways To Make Make Money Online Without Leaving Home

If you’re hanging around the house a lot these days — and who isn’t? — use your time to make some extra cash.

How to Stop Living Paycheck to Paycheck in 8 Steps
How to Stop Living Paycheck to Paycheck in 8 Steps

Does it feel like your paycheck is gone the moment you get it? You can break that vicious cycle.

This Is the Best Time of Day to Take Blood Pressure Meds
This Is the Best Time of Day to Take Blood Pressure Meds

The right timing can help you prevent a big — and possibly fatal — mistake.

17 Amazon Finds Under $20 That Will Organize Your Life
17 Amazon Finds Under $20 That Will Organize Your Life

We’ve rounded up must-have products to help you get your ducks in a row.

How to Invest in Real Estate for as Little as $500
How to Invest in Real Estate for as Little as $500

If stock market volatility has you looking for other investment options, here’s a way to diversify — even if you don’t have tons of money.

View this page without ads

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

Get Started

Most Popular
Will I Get My Ex-Husband’s Social Security When He Dies?
Will I Get My Ex-Husband’s Social Security When He Dies?

Two factors determine how much money is coming to you.

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.

22 Things You Should Always Buy at a Dollar Store
22 Things You Should Always Buy at a Dollar Store

The dollar store has great bargains on these purchases.

5 Household Disinfectants That Can Destroy the Coronavirus
5 Household Disinfectants That Can Destroy the Coronavirus

You likely already have some of these products at home.

6 Reasons I Will Never Trust Suze Orman
6 Reasons I Will Never Trust Suze Orman

Beware: The self-proclaimed personal finance expert has a track record that suggests more sizzle than steak.

20 Things That Are Actually Worth Stockpiling
20 Things That Are Actually Worth Stockpiling

You probably don’t need a year’s supply of toilet paper to survive an outbreak, but consider stocking up on these items.

16 Amazon Purchases That We Are Loving Right Now
16 Amazon Purchases That We Are Loving Right Now

These practical products make everyday life a little easier.

America’s Most Reliable Appliance Brand Is a Surprise
America’s Most Reliable Appliance Brand Is a Surprise

Have you heard of this appliance manufacturer?

This Type of Social Security Benefit Is Often Overlooked
This Type of Social Security Benefit Is Often Overlooked

The Social Security Administration is not helping certain people get money to which they are entitled, a report says.

Getting These 2 Shots Could Reduce Your Risk of Dementia
Getting These 2 Shots Could Reduce Your Risk of Dementia

These vaccines may lower the risk of Alzheimer’s disease by up to 40%.

9 Everyday Problems You Can Solve With Vaseline
9 Everyday Problems You Can Solve With Vaseline

Forget expensive specialty products. Good ol’ petroleum jelly can address many common annoyances.

19 Purchases That Buyers Almost Always Regret
19 Purchases That Buyers Almost Always Regret

Think twice before buying these things.

7 Tips for Building an Emergency Stockpile
7 Tips for Building an Emergency Stockpile

A pandemic or natural disaster could leave you reliant on your existing food supply. Is your pantry prepared?

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.

8 of the Worst Things to Buy at a Dollar Store
8 of the Worst Things to Buy at a Dollar Store

Not everything sold at dollar stores is a great bargain or a safe purchase. Here’s our list of products to avoid.

41 Things You Should Never Buy
41 Things You Should Never Buy

Some purchases are just plain dumb. Give yourself — and your budget — a break. Don’t spend money on this stuff.

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.

13 Brilliant Bulk-Buy Items on Amazon
13 Brilliant Bulk-Buy Items on Amazon

Every household should have these products on hand. Buying them in bulk on Amazon saves you cash.

8 Award-Winning Products That Impressed 40,000 Shoppers
8 Award-Winning Products That Impressed 40,000 Shoppers

The Product of the Year awards help shoppers find the best pet products, personal care items and everything in between.

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.