We all have until April 15 to finalize our contribution to our IRAs for 2020, but many of us may be wondering: Are we putting our money into a Roth IRA or a traditional IRA?
Carl Carlson, CEO and founder of Carlson Financial, has the following three tips to determine Roth versus the IRA’s traditional contributions:
- Your income now versus your retired income
- Your tax group is now in relation to your retired tax category
- The IRS tax rates are now the opposite of the IRS taxes in the future
When thinking about whether to deposit your money into a Roth IRA or a traditional IRA, all you have to keep in mind is: From low to high funds, “eat Roth Pie,” he said.
Your income now versus your retired income
Sometimes people think, “How could I ever have a higher retirement income?” Carlson sees this quite often. for ends up with two pensions, and if a significant amount of money has been saved over the years, the money coming from the IRA (which the IRS forces the IRS at some point).
On the other hand, Carlson said the fact that social security is not taxable at all if it is the only income you have, and if you take money from a savings account or from a Roth IRA, then you are not paying pension tax.
Your tax group is now in relation to your retired tax category
Carlson said he remembers that tax categories could and did change in the past, even in the recent past. Also, don’t forget to consider retirement strategies that could bring you to lower tax brackets.
The IRS tax rates are now the opposite of the IRS taxes in the future
Tax categories may remain the same, but the tax rate within a tax group may be increased or decreased. Carlson added that recently tax rates have been cut in line with President Trump’s tax bill. Current tax rates are automatically set at sunset in 2025 and return to previously higher tax rates.
Remember, when considering whether to pay money to a Roth IRA or a traditional IRA, all you have to keep in mind is, “Low to high means eating a Roth Pie.”
