As you might know, Brandon and I are former fighter pilots. Brandon flew the F-16 and I flew the F-15E during our service in the Air Force. We each have an affection for the specific aircraft we flew, but if you were to ask us which fighter is “best,” our honest answer would be, “It depends.”
Each aircraft has its own strengths and weaknesses. One fighter may be superior to another fighter in some respects, but inferior in other respects. Need a lot of bombs or sensors or gas? The F-15E is probably a better bet. But if you wanted a smaller logistical footprint, more maneuverability, or needed to suppress enemey air defenses, you should probably go with the F-16. And to be perfectly honest, we could probably reasonably defend a case in which the other fighter would be more appropriate given those same requirements! It just… depends.
One of the most common questions people ask us about retirement savings is, “Which is best? A traditional IRA or a Roth IRA?” Our answer? “It depends!” We don’t use that answer to end the conversation, but rather to highlight the importance of understanding the result or effect you’re trying to achieve with the retirement account under various assumptions and circumstances. It really does depend on what is most important to you.
If you are looking for flexibility and want to avoid possible early withdrawal penalties, then a Roth IRA is best. If you are looking for an upfront tax break and freedom from income requirements, then a traditional IRA is the way to go. We created the below table comparing the traditional IRA and the Roth IRA to help you make informed decisions about your retirement.
| Traditional IRA versus Roth IRA? Which is best? | ||
| Traditional IRA | Roth IRA | |
| Income Requirements | None. | Yes. See the IRS rules. |
| Contribution Limits | $6,000 per year or $7,000 per year if 50 years old or older. | $6,000 per year or $7,000 per year if 50 years old or older. |
| Timing of Tax Savings and Liability | Funds taxed when withdrawn. No tax when deposited. Upfront tax savings. Tax-deferred growth and tax-deductible contributions. | Funds taxed before deposited. No tax on withdrawal. Funds grow tax-free. Tax-free growth and tax-free qualified withdrawals. |
| Lowers Gross Income (Tax Deductible Contributions) | Yes, in the year the contribution is made, but may be limited if you or your spouse already have another retirement plan. | No, funds are deposited after taxes. |
| Early Withdrawal Penalty | Penalty of 10% if withdrawn before 59.5 years old (plus income taxes at your ordinary income tax rate). | No penalty or taxes on your contributions. No taxes on your earnings if withdrawn at 59.5 years old or after and five-year holding period is met. |
| Required Distributions | Yes, required minimum distributions are required after you reach 70.5 years old. | None. |
| Age Restrictions | Yes, must be younger than 70.5 years to contribute. | None. |
| Contribution Deadline | April 15th the following year. | April 15th the following year. |
Now that you have had a chance to compare the two IRAs, you are ready to start making some informed decisions about your retirement. Please contact us so we can answer any of your remaining questions. We will help you make confident decisions about which IRA is “best” for you.
At Targeted Wealth Solutions, we help you minimize financial uncertainty so you can be free to pursue your unique purpose in life.
| Brandon LaValley | Aaron Milledge |
hello@targetedwealthsolutions.com
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