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IRA Management

Calculator: Choosing Between a Traditional IRA or Roth IRA

Betterment’s IRA calculator can help you determine whether a Traditional IRA or a Roth IRA is best for you.

Articles by Alex Benke, CFP®

By Alex Benke, CFP®
VP of Advice and Investing, Betterment
Published: December 29, 2014 | Updated: December 19, 2018

Selecting the right IRA depends on your income, your other retirement accounts, your marital status, and your age—but also your expected future tax bracket.

You can have multiple IRAs, but the annual contribution limit across all IRA accounts is $6,000 if you’re under age 50, and $7,000 if you’re over age 50.

If you’re new to IRAs, here’s a quick tutorial: IRA stands for Individual Retirement Account. They are a type of tax-advantaged investment account in which people who have earned taxable income in a given year can contribute up to $6,000 per year (or $7,000 for those 50 and older). The limit is subject to change from year to year—these limits are for the 2019 tax year.

Choosing between funding a Traditional or Roth IRA can be tricky because you may qualify for both depending on your income and age. If you have to choose between types, your current and future tax bracket will have an impact on which account is most advantageous. In some cases, advanced IRA planning can be used to extract additional tax benefits by converting between IRA types.

IRAs can be used in addition to a 401(k) or other employer-sponsored retirement plan. There are two types—a Traditional IRA and a Roth IRA—each with their own guidelines and tax advantages. Here are the basic tax advantages of each:

  1. Traditional IRA: Contributions may be tax-deductible, and all growth is tax-deferred. Tax is only paid upon withdrawal in retirement, and you must begin withdrawing a specific portion of your accounts annually starting at age 70 ½.
  2. Roth IRA: Contributions are not tax-deductible, but qualified withdrawals and growth are tax-free. Unlike traditional IRAs, you are never required to begin making withdrawals from your Roth.

The IRA qualification rules are complex and often misunderstood. To make it quick and easy to help you determine the IRA type best suited for your needs and situation, we have developed this calculator. Note: This calculator is intended to help with IRA selection only. To meet your retirement goals, you may also need to invest in employer-sponsored plans or other accounts.

Which IRA Should You Use?

Use the calculator to get customized IRA advice.

Getting Started

We hope this calculator provides a starting point for your decision on which type of IRA you should consider funding. Within a Betterment account, we can provide additional advice regarding which accounts you should be funding and in what order. You can even sync up your existing IRAs, 401(k)s, and other financial accounts to see an overall picture of your finances. Get started or log in to complete your retirement plan and see personalized savings advice.

Contributing Authors

Corbin Blackwell
Financial Planner, Betterment

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