Ep 42: Traditional or Roth IRA?

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The Concept:

Despite the popularity of IRAs, there seems to be quite a bit of confusion between the traditional options and the Roth. What’s the difference between the two and where should you be contributing your money? Today we’ll answer those questions and help you better understand your investing options.

The Reality of the Matter:

Nearly everyone that begins their financial journey begins by opening a retirement account to start saving money. The options vary depending on employers but the IRA is always a popular choice with investors.

The question, however, is which type of IRA is best for your financial goals. There’s the traditional IRA and the Roth IRA and both have different benefits, but there still seems to be some confusion around how they both function.

On this episode of the Retirement Reality Podcast, Mike Kojonen will clear up some of the most common questions surrounding these retirement accounts to help you understand how they work and which might be your best option.

The biggest thing to understand is that the traditional IRA utilizes pre-tax money for contributions. That allows investors to gain the benefits of tax deductions up-front as they build their account. On the Roth side, the contributions come in after taxes so you don’t receive those benefits on the front end. You do, however, grow your money tax-free and that could pay huge dividends over time.

The Roth option has become increasingly popular in recent years, especially considering how low tax rates currently are. Many people are choosing to pay those taxes now rather than in retirement because they assume rates will go up in the future.

That doesn’t mean that a traditional doesn’t have a role in your portfolio. It could be the better option for you depending on your situation, and we’ll share an example of someone that might benefit more from this option.


Today we also answer two mailbag questions from listeners. The first asks about leaving an inheritance for your kids. Should you tell them about it so they can plan for it or keep it a surprise? Mike tells us what he typically advises clients and what considerations are important.

The second question is about retirement income. This listener expects to travel a lot once they quit working and their plans include journeys to every continent. With those plans in place, should they be expecting to need more monthly income than they are using now?

Listen to the full episode or click on the timestamps below to skip around to a specific topic. 

1:19 – Do you get a lot of questions on this subject from clients?

2:32 – Explain the differences between the two.

4:56 – Why do people typically contribute more to IRA over Roth?

6:00 – How can a Roth be a powerful tool for investors?

8:00 – Who is someone that would benefit from contributing to a Roth over traditional?

11:31 – Who would benefit more from a traditional IRA over a Roth?

13:26Mailbag question #1: We should be leaving a significant amount of money to our kids. Should we tell them about our plans now or let it be a surprise?

16:41Mailbag question #1: We have big travel plans in retirement, including visiting all 7 continents. Will we need more income in retirement than we have now?

Thanks for checking out the Retirement Reality Podcast. We’ll talk to you again next week.

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