TL;DR:

A Traditional IRA gives you a tax break now; a Roth IRA gives you one later.
Your current vs. future tax rate is the key factor, but you may also be limited on a Roth if you are over certain income levels.
Always talk with your advisor to better understand which fits the lifestyle you have now and want to have in the future.

Context

Let's talk retirement plans. If you've ever Googled "best retirement account," you've probably seen the same two contenders come up over and over again: the Traditional IRA and the Roth IRA. But despite how often they're mentioned, the differences between them—and how to choose—aren't always clearly explained.

To start, let's clear up one common mix-up: when people talk about 401(k)s, they often mean a Traditional 401(k), which works similarly to a Traditional IRA (more on that in a sec). Same goes for Roth 401(k)s vs. Roth IRAs. The key thing to know is that "Traditional" = tax break now, and "Roth" = tax break later.

Why Retirement Plans Are Worth It

Before we talk further about the plan types, it’s helpful to answer a fundamental question: why are these so valuable in the first place? Can’t you just us individual brokerage accounts?

You can—but you’d be leaving serious money on the table. Tax-advantaged retirement accounts like IRAs grow faster over time because they avoid annual taxes on interest, dividends, and capital gains. For example:

Suppose you invest $6,000 annually in a regular taxable account earning 7% annually for 30 years. You might end up with around $500,000 after taxes.
Put that same $6,000 into a tax-advantaged IRA with the same return, and you could end up with $600,000–$650,000+, depending on your tax situation.

That’s $100,000+ in additional growth just from using the right account structure.

Tax-advantaged growth = compound interest’s best friend.

The Basics: What Each IRA Does

Traditional IRA:

You contribute pre-tax income (or get a deduction on your taxes if you qualify).
Your money grows tax-deferred.
You pay taxes when you withdraw in retirement.

Roth IRA:

You contribute post-tax income (you've already paid taxes on it).
Your money grows tax-free.
You don’t pay taxes when you withdraw in retirement (as long as it's a qualified distribution).

So, Which One's Better?

That depends mostly on your current and future tax situation:

Go Traditional IRA if:

You're in a high tax bracket now and expect to be in a lower one later.
You want the immediate tax deduction this year.

Go Roth IRA if:

You're in a lower tax bracket now and expect to be in a higher one later.
You value tax-free growth and withdrawals.

Key Considerations

Income limits: You can be phased out of Roth IRA eligibility if you earn too much (over $150,000 for single filers or over $236,000 for joint filers is where you start to get phased out).
- Traditional IRAs don't have income limits for contributions, but they do have limits on whether the contributions are deductible.
- A potential option for high income earners that want to contribute to a Roth IRA is a “Backdoor Roth” — talk to an advisor before considering this option as it gets complex from a tax consequence perspective.
Required Minimum Distributions (RMDs): Traditional IRAs require you to start withdrawing at age 73. Roth IRAs don't.
Withdrawal rules: Roth IRAs let you withdraw your contributions (not earnings) at any time, tax- and penalty-free. Traditional IRAs? Not so much.

Quick Note for the Self-Employed

If you're self-employed, your IRA options multiply: SEP IRAs, SIMPLE IRAs, and Solo 401(k)s all come into play. These offer higher contribution limits and different tax perks, and deserve their own post (which we'll cover soon).

For now, just know that the Traditional vs. Roth decision still applies in many cases—there are Roth Solo 401(k)s, for instance. So the same tax-now-or-tax-later logic still helps guide your choice.

Takeaway:

If you're trying to decide between a Traditional and Roth IRA, ask yourself this: Would you rather get a tax break today or in retirement? Your answer probably points you in the right direction.

What to do next:

Check your current and projected tax brackets.
Confirm your eligibility for Roth contributions.
Consider diversifying—some folks use both IRAs for flexibility.
Talk to your advisor to tailor a plan that fits your specific goals and tax situation
- For clients of LKL Advisors, optimization of tax advantaged accounts is handled as part of your initial intake, but should your tax situation materially change, we need to know so we can adjust accordingly.

Retirement might be decades away, but the right planning today makes a huge difference later. Start now, and your future self will thank you (possibly from a beach).

Retirement: Choosing the right individual retirement account