Roth vs. Traditional IRA

Should your retirement savings go into a Roth or a traditional IRA? It comes down to one question: pay taxes now, or later? With brackets historically low, Michael Alman explains how each account is taxed and how to decide which fits your situation in 2025.

Video transcript

Hello, my name is Michael Alman and I’m a financial adviser with Patriot Asset Advisors. Today we’re looking at the differences between Roth IRAs and traditional IRAs, and which might be better for you in 2025. If you’re saving for retirement, you’ve probably wondered whether to put your money into a Roth or a traditional IRA. With the tax changes in 2025, the answer might be different than you think. The good news is both accounts can help you save for retirement — the difference comes down to when you pay the taxes. The government is always going to get its share, so do you pay now or pay later? With tax brackets staying historically low thanks to recent legislation, your choice today can have a big impact later in life.

So what are the true differences? With a traditional IRA, your contributions are made before taxes are taken out, so you get a tax deduction now; your money grows tax-deferred, and you pay income taxes when you withdraw it in retirement. With a Roth IRA, you make your contributions now, after tax, but your withdrawals in retirement are completely tax-free — you don’t have to worry about income taxes at that point.

Why does this matter now? With recent legislation, tax brackets are remaining historically low. That means many people are choosing to pay taxes now, in these lower brackets, rather than later when brackets may change. If you expect to be in a higher bracket later — because your income grows or because brackets change — converting to a Roth may be the right choice. If you expect lower income in retirement, or you need a tax deduction today, a traditional IRA is probably the better fit. For example, a 35-year-old professional with steadily growing income may prefer the Roth, investing while taxes are low. A 60-something retiree who wants to reduce their taxable income may prefer the traditional IRA. And for many people, it’s not one or the other — it’s both. That’s the beauty of diversification within your portfolio.

The right individual retirement account depends on many personal factors: your retirement goals, your age, how much you’ve already saved, and your employment situation. If you’d like help running the numbers and deciding what’s right for you, consult with a financial professional and make a plan — because everyone should have one.