When it comes to saving for retirement, one of the key decisions you’ll need to make is whether to contribute to a Roth IRA or a Traditional IRA. Both types of individual retirement accounts offer significant tax advantages, but they differ in how those tax advantages work.

A Traditional IRA allows you to make tax-deductible contributions, which means you can reduce your taxable income in the year you make the contribution. The money in the account then grows tax-deferred until you begin making withdrawals in retirement, at which point you’ll pay taxes on the withdrawals at your regular income tax rate.

On the other hand, a Roth IRA offers tax-free growth. You make contributions with after-tax dollars, so you don’t get a tax deduction when you make the contribution. However, once the money is in the account, it grows tax-free, and you won’t owe any taxes on qualified withdrawals in retirement.

So which type of IRA is better for you? The answer depends on your current financial situation and your expectations for the future. Here are some factors to consider when deciding between a Roth and a Traditional IRA:

1. Tax benefits: If you expect to be in a higher tax bracket in retirement than you are now, a Roth IRA may be the better choice, as you’ll pay taxes on the contribution now at a lower rate than you would in the future. On the other hand, if you expect to be in a lower tax bracket in retirement, a Traditional IRA may make more sense, as you’ll get a tax deduction now when your tax rate is higher.

2. Eligibility: There are income limits for contributing to a Roth IRA, so if you earn too much to qualify, a Traditional IRA may be your only option. Additionally, if you have a workplace retirement plan like a 401(k), your ability to take a tax deduction for contributions to a Traditional IRA may be limited.

3. Withdrawal rules: With a Roth IRA, you can withdraw your contributions at any time without paying taxes or penalties, making it a more flexible option if you think you may need to access the money before retirement. However, if you withdraw earnings from a Roth IRA before age 59 ½, you may owe taxes and penalties. Traditional IRAs have similar withdrawal rules, but you’ll owe taxes and penalties on any withdrawals, even of contributions, before age 59 ½.

In the end, the decision between a Roth and Traditional IRA will depend on your individual circumstances and goals. It may even make sense to contribute to both types of accounts to hedge your bets and diversify your tax liabilities in retirement. To make the best choice, consider consulting with a financial advisor who can help you assess your situation and make a plan that aligns with your long-term financial goals.

LEARN MORE ABOUT: IRA Accounts

INVESTING IN A GOLD IRA: Gold IRA Account

INVESTING IN A SILVER IRA: Silver IRA Account

REVEALED: Best Gold Backed IRA