With a traditional IRA, the money you contribute and the income earned on your contributions are not taxed until many years later when you withdraw upon retirement. Often people who are close to retirement have fewer expenses; usually their mortgage is paid off and their children have grown up. This typically leaves them in a lower tax bracket. In this situation, a traditional IRA would be the best choice for their investment because they are being taxed in a lower tax bracket upon withdrawal.

With a Roth IRA, your contribution is funded with after-tax dollars and none of the principal or growth is subject to taxation at withdrawal (if certain conditions are met). People who expect to be in a higher tax bracket upon retirement will benefit more by investing in a Roth because their after-tax dollars were contributed at a time when they were in a lower tax bracket and their earnings over the years won’t ever be taxed at the time of their retirement. A Roth IRA tends to benefit employees who expect to be in a higher tax bracket by the time they reach retirement.

Did you know that NADART offers a Roth 401(k) option, similar to the Roth IRA? In a Roth 401(k), income taxes are paid at a participant’s regular income tax rate at the time of contribution, and earnings and withdrawals are not taxed if withdrawals begin after the age of 59 ½. Employees who are restricted from contributing to a Roth IRA plan due to Adjusted Gross Income (AGI) limits find the Roth 401(k) plan more rewarding since there are no AGI restrictions.

If you’re interested in learning more about the Roth 401(K) option, please contact a NADART representative at (800) 462-3278, ext. 7161 or e-mail nadart401k@nada.org.