How would you like to invest for retirement tax free?

An IRA, which stands for “Individual retirement account” is probably the easiest and most straightforward way to do that.

But which IRA should you choose?

The truth is… it depends on your unique situation…

And making the right choice for you can make hundreds of thousands of dollars of difference, which means having more or less passive income to enjoy once you start taking money from your retirement account.

In this video, I’m going to break down the differences between a Roth IRA and a Traditional IRA so you can choose which option is going to best help you have enough money for the future and be able to retire comfortably without having to keep working, if you don’t want to.

The biggest difference that I want to highlight between the Roth IRA and the Traditional IRA is that:

With the Traditional IRA, you get a tax deduction going in, you grow money tax free, and then you pay taxes when you take it out.

With the Roth IRA, you don’t get a tax deduction going in, you still grow money tax free, and then you DON’T pay taxes when you take it out.

If you start investing $300 a month at age 25, and you earn an average of 8% on your money, by the time you’re 65, you’ll have over $1,054,000.

At that point, you’ll have invested a total of $144,000 of your own money.
The other $910,000 is all growth.

If you did this in a Roth IRA, you’d have to pay taxes on the $144,000 that you put in but you’d become a tax free millionaire and be able to take your retirement income tax free.

If you did this in a Traditional IRA, you would have gotten a tax deduction on $144,000 that you put in, but now you’d have to pay taxes on one million and fifty-four thousand dollars.

Would you rather pay taxes on $144,000? Or on $1,054,000?

If you’d rather pay taxes on the $144,000 and take your retirement income tax free, then the Roth IRA allows you to do that.

T. Rowe Price did a study that showed that the Roth IRA ends up being a better choice for almost everyone investing for retirement.

If you make too much money to qualify for a Roth IRA, you can do what’s called a “Back Door Roth IRA.”

High income earners like Dave Ramsey do this every year. They put after tax money into a Traditional IRA and then do a direct transfer roll over into a Roth IRA.

Any money you can get into your Roth IRA will allow you to grow money tax free and take your retirement income tax free.

But, depending on how close you are to retirement and what kind of a rate of return you’re getting on your investments, a Traditional IRA might still work out better for your unique situation.

Now that you understand the main differences in how the Roth IRA and the Traditional IRA are taxed you can discuss your particular financial situation with a tax expert or financial planner and see which one is the best fit for you.

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