Retirement planning usually starts with one big question: Do I want to pay taxes now or later?
Sounds simple enough. But if you’ve been running a successful business and managing your own income for a while, you already know there’s no such thing as a one-size-fits-all strategy—especially when it comes to taxes.
If you’re deciding between a Roth IRA and a Traditional IRA, you’re essentially choosing when to get taxed. Both are great tools. But depending on your income, long-term goals, and how you see your retirement playing out, one might be a better fit than the other.
Let’s walk through the key differences—and more importantly—when each strategy makes the most sense.
🧾 The Basics: Roth vs. Traditional IRA
Traditional IRA
- Contributions: Made with pre-tax income (if eligible), which may lower your taxable income now
- Tax timing: You pay taxes later, when you withdraw in retirement
- Withdrawals: Taxable as income; required minimum distributions start at age 73
- Best for: People expecting to be in a lower tax bracket in retirement
Roth IRA
- Contributions: Made with after-tax income, so no tax deduction today
- Tax timing: You pay taxes now—but get tax-free growth and withdrawals later
- Withdrawals: Tax-free in retirement, no required distributions
- Best for: People expecting to be in a higher tax bracket later, or who want tax-free growth
Same contribution limits apply to both: $7,000 annually (or $8,000 if you’re 50+), but Roth IRAs have income caps for eligibility.
🧠 Real-Life Scenarios: When Each Makes Sense
Scenario 1: The Roth IRA Advantage
Let’s say you’re in your early-to-mid career, expecting earnings to climb in the years ahead. You’re maxing out your retirement accounts and looking for more ways to grow your wealth tax-efficiently. Paying taxes now while your income (and tax rate) is relatively modest could be a smart move.
Bonus? Roth IRAs don’t require minimum distributions, giving you more flexibility in retirement. You can let that account grow as long as you like, or strategically withdraw when it makes the most tax sense.
Scenario 2: The Traditional IRA Advantage
You’re in a high-income year—collections are strong, expenses are controlled, and you’d love to lower this year’s tax bill. A Traditional IRA contribution could reduce your taxable income today and free up some extra cash to reinvest in your practice, real estate, or another asset. If you expect to draw less income in retirement, you’ll likely pay a lower tax rate on those funds when you take them out later.
The Bottom Line
There’s no wrong answer here—just different paths depending on your current situation and where you’re headed. Some clients even use both over time, switching strategies as their income and tax picture changes.
If you’re unsure which route makes the most sense right now—or whether a Roth conversion could work in your favor—we’re here to walk through the numbers with you.