Roth vs. Traditional IRA: Deciding Where You Want the Tax Benefit

Planning for Retirement Is a Lifelong Process

When it comes to retirement planning, there are multiple ways for education professionals to save. While there is no standard investment model that fits everyone’s financial goals, not knowing where to save or how to save is the biggest obstacle.

Watch How Annuities and Retirement Savings Plans Work

For Starters, Just Start

No matter your age or financial situation, one of the most important steps in planning for retirement is to start. The earlier you start, the more time your money has to grow, and the better off you will be.

Contribution example showing the benefit of investing early

In this example, a $2,000 annual contribution - or roughly $167 a month - is growing at a hypothetical 5% rate of return. You can see the difference that time, the most important factor, can make on the investment.

Use Retirement Savings Calculator

Understand Your Options

Even if you’re already contributing to an employer-sponsored plan like a 403(b), an Individual Retirement Account (IRA) allows you to do additional planning, while also potentially saving on taxes. When thinking about an IRA, there are a few key questions to ask yourself.

Three Questions to Ask Yourself Before Investing

1. When do you want the tax benefit? Now or when you retire?

2. How much do you need to save annually?

3. What kind of flexibility are you looking for in your investment?

Comparing a Traditional IRA and Roth IRA

Traditional and Roth IRAs allow you to save money for retirement and offer significant tax benefits. IRAs can be opened and funded without any employer involvement. The major difference in these two types of IRAs is deciding when you want the tax benefit: when you contribute or at retirement when you withdraw the money.

Choosing the Right Account

To help decide which type of IRA to open, ask yourself where you expect to be when you start taking withdrawals, typically around age 60. Do you expect to be in the same tax bracket, or do you anticipate being in a higher one?

Benefits of Contributing to a Traditional IRA

Contributions may be tax deductible
Reduce taxable income and grow earnings tax deferred
Eligibility not limited by income

Benefits of Contributing to a Roth IRA

No age limit to open or contribute to account
No required withdrawal age
Qualified withdrawals are tax free

Fund Your Future

When it comes to investing, time is important. There is no one right investment strategy for everyone, but the most important thing is to start investing now.

For more information about planning your retirement, reach out to your American Fidelity Account Manager or learn more about retirement savings.