Fidelity Roth IRA vs. Traditional IRA: Best Retirement Account in 2022

Someone asks:

Roth vs. Traditional IRA question. I’ve come across a few people over the past few days who say only contribute to your traditional 401K and not the Roth. Am I missing some nugget of wisdom where pre-taxed is better than tax-free growth?

Community Answers:

Ahmed A:

A Roth IRA is better than Traditional IRA because you won’t owe taxes once you reach 60. You can also access your contribution with no penalty and taxes at any time. And frankly, I believe that taxes in the future will be higher than the current rate.

Nothing wrong with the Roth 401k. When taking advice from a coworker, consider what level of expertise he has. The rule of thumb is to contribute to your 401k only up to the employer match. Then contribute to an IRA up to the max, then put what’s left in the 401k. Any additional money can go into a taxable brokerage account.

Todd A:

100% situation based. High current income may warrant the traditional contributions. Low expected retirement taxes may also warrant the traditional contributions. Traditional IRA contributions save you more today so that you can contribute more.

Roth is good if you are in a low tax bracket now and expect it to be in a higher tax bracket when you hit retirement. You may have to contribute a bit less because it costs you more, but tax-free growth is a pretty nice thing to have.

At the end of the day, you should go into retirement with all three tax buckets. Tax deferred (traditional), tax free (Roth), and after tax (taxable brokerage money). This will allow for the highest level of continued flexibility throughout retirement.

Rob U:

It depends on your income now and your projected income in retirement. It’s a no-brainer on Roth IRA if you’re in the 22% or lower tax bracket. 24% and up is where you have to make a decision. I’ve done both.

Hillary D:

The Traditional IRA allows me to save more and still have extra to put in a Roth. I save up to the employer match in my Traditional retirement account for the free money and tax break, then the rest in a ROTH or taxable brokerage account.

Nickki N:

If you are above the 12% tax bracket, then a Traditional IRA makes more sense. If you are 12%, go Roth. I’m saving 22% off the top by contributing to Traditional. That is likely higher than my effective tax rate in retirement because I plan to live on $60k a year.

Tina M:

When I worked for Vanguard, I started making my 401k contributions as Roth contributions as soon as they gave us the option. When I retired and rolled over to an IRA, it was so nice to have a large chunk go into my Roth. I’ve been watching it grow tax free for 2 years. I paid higher taxes then, but I don’t regret it at all. It’s great having about half my portfolio growing tax free!!