Roth vs. Traditional IRA: What is the Difference?

Navigating retirement planning involves understanding various investment vehicles, and two popular options are the Roth IRA and the Traditional IRA, each offering distinct tax advantages and contribution rules. The Internal Revenue Service (IRS) sets specific guidelines for both types of accounts, impacting eligibility and contribution limits. Vanguard, a well-known investment firm, provides resources and platforms for individuals to manage their retirement savings in either a Roth or Traditional IRA. A key consideration for investors is understanding what is the difference between and how these accounts affect their tax liabilities both now and in retirement, as advised by financial advisors who specialize in retirement planning.

Roth vs. Traditional IRAs: Choosing the Right Path for Your Retirement

Retirement planning can seem daunting. The world of savings vehicles and investment strategies is vast and often complex. Individual Retirement Accounts (IRAs) stand out as powerful tools to build a secure financial future.

However, simply opening an IRA isn't enough. The choice between a Roth IRA and a Traditional IRA is a critical one. This decision can significantly impact your retirement income and tax obligations.

Defining Roth and Traditional IRAs

Before diving into the details, let's establish a basic understanding of each account type.

A Traditional IRA is a retirement account that allows pre-tax contributions to grow tax-deferred. This means you may be able to deduct your contributions from your current income. You won't pay taxes on the earnings until you withdraw them in retirement.

A Roth IRA, on the other hand, is funded with after-tax dollars. While you don't receive an upfront tax deduction, your investments grow tax-free. Qualified withdrawals in retirement are also completely tax-free.

The Importance of Choosing Wisely

Selecting the right type of IRA is not merely a technicality. It's a foundational element of sound retirement planning. The long-term implications can be substantial.

The wrong choice could lead to higher taxes in retirement. It may also limit your flexibility in managing your retirement funds. Careful consideration of your current financial situation and future tax outlook is essential.

Objective: Empowering Informed Decisions

This article provides a comprehensive comparison of Roth and Traditional IRAs. Our goal is to equip you with the knowledge necessary to make an informed decision.

We will delve into the nuances of each account type. We will explore their benefits and drawbacks. You will also learn about the crucial factors to consider. These considerations will allow you to align your retirement savings strategy with your individual needs and financial goals.

Roth IRAs: Unlocking Tax-Free Retirement Growth

Having a clearer understanding of the landscape of retirement savings vehicles, it's time to delve into the specifics of Roth IRAs. This section illuminates the defining characteristics of Roth IRAs, their contribution guidelines, and the unique tax advantages that make them an attractive option for many.

Defining the Roth IRA: A Pathway to Tax-Free Retirement

A Roth IRA is a retirement savings account offering tax-free growth and withdrawals in retirement. This fundamentally distinguishes it from traditional IRAs, where contributions may be tax-deductible, but withdrawals are taxed.

With a Roth IRA, you contribute after-tax dollars, meaning you won't receive an immediate tax deduction. However, your investments grow tax-free, and, crucially, qualified withdrawals in retirement are also completely tax-free.

Contribution Rules: Funding Your Tax-Advantaged Future

After-Tax Contributions

Roth IRAs are funded with after-tax dollars, meaning that the money you contribute has already been subjected to income tax. This is an important distinction as it affects your tax liability in the present, but sets the stage for future tax advantages.

Contribution and Income Limits

The IRS sets annual contribution limits for Roth IRAs, which can fluctuate year to year. There are also income limits that determine eligibility to contribute. Individuals exceeding these income thresholds may not be able to contribute directly to a Roth IRA.

It's essential to stay abreast of these limits, which are typically updated annually by the IRS. Contributing above the limit can result in penalties.

The Backdoor Roth IRA Strategy

High-income earners who exceed the Roth IRA income limits can potentially utilize the Backdoor Roth IRA strategy. This involves contributing to a traditional IRA (which has no income limits for contributions) and then converting that traditional IRA to a Roth IRA.

The steps include making a non-deductible contribution to a traditional IRA.

Subsequently, converting the traditional IRA funds to a Roth IRA.

It's crucial to be aware of the pro-rata rule, which dictates that if you have existing pre-tax money in traditional IRAs, a portion of the conversion will be taxed. Consulting with a tax advisor is highly recommended before implementing this strategy.

Growth and Withdrawals: Tax-Free in Retirement

Tax-Free Growth Potential

One of the most compelling advantages of a Roth IRA is the potential for tax-free growth. Your investments within the Roth IRA grow without being subject to annual taxation on dividends, interest, or capital gains.

This allows your retirement savings to compound more rapidly over time, unburdened by the drag of taxes.

Qualified Distributions: Tax-Free and Penalty-Free

Qualified distributions from a Roth IRA are entirely tax-free and penalty-free. To be considered a qualified distribution, certain requirements must be met:

The distribution must be made at least five years after the first Roth IRA contribution.

The account owner must be at least 59 1/2 years old, disabled, or the distribution must be for a first-time home purchase (up to a lifetime limit).

Non-Qualified Distributions

Non-qualified distributions, those that don't meet the above criteria, may be subject to income tax and a 10% penalty. It's important to understand the rules governing distributions to avoid unexpected tax liabilities and penalties.

Roth Conversions: Shifting Assets for Tax Benefits

A Roth conversion involves transferring funds from a traditional IRA or other pre-tax retirement account into a Roth IRA. The amount converted is generally subject to income tax in the year of the conversion.

The potential benefits include future tax-free growth and withdrawals, particularly if you anticipate being in a higher tax bracket in retirement. However, it is a complex decision with tax implications.

It is crucial to carefully evaluate your current and projected tax situation before undertaking a Roth conversion. Consulting with a qualified tax professional is advisable.

Traditional IRAs: Leveraging Potential Tax Deductions Today

Having explored the landscape of Roth IRAs and their tax-advantaged growth, it's crucial to understand the mechanics and benefits of their counterpart: the Traditional IRA. This section delves into the pre-tax contribution advantages of Traditional IRAs, contrasting them with Roth IRAs regarding taxation and withdrawal rules. We will also highlight the critical implications of Required Minimum Distributions (RMDs) in retirement.

Understanding Traditional IRAs: A Pre-Tax Perspective

A Traditional IRA is a retirement savings plan that offers the potential for immediate tax benefits. Contributions to a Traditional IRA are often made on a pre-tax basis, meaning they can be deducted from your taxable income in the year they are made.

The earnings within the account grow tax-deferred. This means you won’t pay taxes on any investment gains until you withdraw the money in retirement. However, all withdrawals in retirement are taxed as ordinary income.

Contribution Rules and Deductibility

Pre-Tax Contributions and Potential Tax Deductions

One of the primary advantages of a Traditional IRA lies in its potential for tax deductions. If you’re eligible, you can deduct your contributions from your taxable income, reducing your current tax liability.

This can be a significant benefit, especially if you anticipate being in a lower tax bracket in retirement. However, it’s crucial to understand the limitations surrounding deductibility.

Contribution Limits

Like Roth IRAs, Traditional IRAs have annual contribution limits, which are subject to change each year. Staying informed about the current contribution limits is essential to maximize your tax-advantaged savings.

Contributions exceeding these limits may be subject to penalties.

Deductibility Limitations

The ability to deduct Traditional IRA contributions is subject to certain limitations, primarily based on your income and whether you are covered by a retirement plan at work (e.g., a 401(k)).

If you (or your spouse, if married) are covered by a retirement plan at work, the deductibility of your Traditional IRA contributions may be limited or eliminated depending on your modified adjusted gross income (MAGI).

If neither you nor your spouse is covered by a retirement plan at work, you can generally deduct the full amount of your Traditional IRA contributions, regardless of your income. Understanding these limitations is critical to avoid unexpected tax consequences.

Growth and Withdrawals: Navigating the Tax Landscape

Tax-Deferred Growth

A significant benefit of Traditional IRAs is tax-deferred growth. Your investments within the IRA grow without being subject to annual taxation.

This allows your money to compound more quickly, potentially leading to greater retirement savings. However, remember that this benefit comes with the caveat that all withdrawals in retirement will be taxed as ordinary income.

Taxation of Withdrawals in Retirement

Unlike Roth IRAs, where qualified withdrawals are tax-free, withdrawals from a Traditional IRA are taxed as ordinary income. This means that the money you withdraw will be subject to your current income tax rate in retirement.

Careful planning is essential to estimate your future tax bracket and determine if the tax deduction today is more beneficial than tax-free withdrawals in the future, offered by a Roth IRA.

Required Minimum Distributions (RMDs)

A critical aspect of Traditional IRAs to consider is Required Minimum Distributions (RMDs). The IRS mandates that you begin taking withdrawals from your Traditional IRA once you reach a certain age (currently 73, but this is subject to change).

RMDs are calculated based on your account balance and life expectancy, and failure to take the required amount can result in significant penalties. This is a key difference from Roth IRAs, which currently do not have RMDs for the original owner.

Early Withdrawal Penalties

Generally, if you withdraw money from a Traditional IRA before age 59 ½, you will be subject to a 10% early withdrawal penalty, in addition to paying income tax on the amount withdrawn.

There are some exceptions to this penalty, such as for qualified higher education expenses or certain medical expenses. Understanding these exceptions can help you avoid unnecessary penalties if you need to access your funds early.

[Traditional IRAs: Leveraging Potential Tax Deductions Today Having explored the landscape of Roth IRAs and their tax-advantaged growth, it's crucial to understand the mechanics and benefits of their counterpart: the Traditional IRA. This section delves into the pre-tax contribution advantages of Traditional IRAs, contrasting them with Roth IRAs regarding...]

Roth vs. Traditional: A Head-to-Head Comparison

Choosing between a Roth and Traditional IRA is a critical decision in retirement planning, one that hinges on understanding the nuances of tax treatment, your projected tax bracket in retirement, and the flexibility each account offers. This section cuts through the complexities to provide a clear, comparative analysis, offering a framework for making the optimal choice for your individual circumstances.

Decoding the Tax Implications

The most fundamental difference between Roth and Traditional IRAs lies in their tax treatment.

Roth IRAs operate on an after-tax contribution basis. This means you contribute money that has already been taxed, but in exchange, your investments grow tax-free, and qualified withdrawals in retirement are also entirely tax-free.

This makes Roth IRAs particularly appealing to individuals who anticipate being in a higher tax bracket in retirement than they are currently.

Traditional IRAs, conversely, allow for pre-tax contributions. This means that your contributions may be tax-deductible in the year they are made, reducing your current taxable income.

However, withdrawals in retirement are taxed as ordinary income. The advantage of a Traditional IRA is greatest when you expect to be in a lower tax bracket in retirement.

Essentially, you are deferring taxes to a later date, hoping to pay them at a lower rate.

Tax Bracket Projections: A Critical Factor

The decision between a Roth and Traditional IRA should be heavily influenced by your expectations regarding future tax rates.

If you anticipate being in a higher tax bracket during retirement, a Roth IRA is generally the more advantageous choice.

You pay taxes on your contributions now, at a lower rate, and enjoy tax-free growth and withdrawals later, when your tax rate is higher.

Conversely, if you anticipate being in a lower tax bracket during retirement, a Traditional IRA might be the better option.

You receive a tax deduction now, potentially reducing your current tax liability, and pay taxes on your withdrawals later, at a lower rate.

Predicting future tax rates is inherently challenging, but it's essential to consider factors such as your anticipated income, potential changes in tax laws, and the overall economic outlook.

Flexibility and Estate Planning: Beyond Taxes

While tax implications are paramount, flexibility and estate planning considerations also play a significant role in the Roth vs. Traditional IRA decision.

Required Minimum Distributions (RMDs)

One key difference lies in Required Minimum Distributions (RMDs). Traditional IRAs are subject to RMDs, meaning you must begin taking withdrawals at a certain age, whether you need the money or not.

This can increase your taxable income in retirement. Roth IRAs, on the other hand, do not have RMDs for the original owner (although beneficiaries are subject to them). This provides greater flexibility in managing your retirement income.

Beneficiary Considerations and Inheritance Rules

When it comes to estate planning, both Roth and Traditional IRAs offer benefits, but there are differences.

Roth IRAs can be more attractive to beneficiaries because distributions are generally tax-free (subject to certain rules).

Traditional IRAs, on the other hand, will be taxed as ordinary income to the beneficiary when withdrawn. The SECURE Act significantly changed the rules for inherited IRAs, generally requiring beneficiaries to withdraw the entire account within 10 years. Understanding these rules is crucial for effective estate planning.

Choosing the right IRA is a personal decision that requires careful consideration of your individual circumstances, tax projections, and financial goals. Consulting with a qualified financial advisor can provide personalized guidance to help you make the most informed choice.

Seeking Expert Guidance: Navigating the Complexities of IRA Decisions

Having made the comparison of both Roth and Traditional IRAs, it's crucial to acknowledge that the decision of which IRA to use is not always straightforward.

While this guide provides valuable insights, individual financial circumstances vary significantly, making personalized advice often necessary. Knowing when to seek professional guidance can be the key to optimizing your retirement savings strategy.

The Value of Professional Financial Advice

Navigating the world of retirement accounts and tax implications can be daunting. The right professional can offer clarity and direction, helping you make informed decisions aligned with your long-term financial goals. But who do you turn to?

Understanding the Roles of Different Professionals

Different financial professionals offer specialized expertise. Knowing their roles can help you identify the right person to address your specific needs.

Financial Advisors/Planners: Your Retirement Strategy Architects

Financial advisors or planners provide comprehensive guidance on all aspects of financial planning, with retirement being a key component. They can help you:

• Determine the most suitable IRA (Roth or Traditional) based on your current and projected financial situation.
• Develop a holistic retirement plan encompassing savings goals, investment strategies, and risk tolerance.
• Optimize your asset allocation within your IRA to maximize growth potential while managing risk.
• Regularly review and adjust your plan as your circumstances change.

Look for advisors who are Certified Financial Planners (CFP®) or hold similar credentials, indicating a commitment to ethical standards and ongoing education.

Tax Professionals: Decoding the Tax Implications

Tax professionals, such as Enrolled Agents (EAs) or Certified Public Accountants (CPAs), specialize in tax law and regulations. They can help you:

• Understand the tax implications of contributing to, converting, or withdrawing from an IRA.
• Maximize your tax deductions related to Traditional IRA contributions.
• Navigate the complexities of Roth IRA conversions, including potential tax liabilities.
• Ensure compliance with all relevant IRS rules and regulations.

Their expertise is invaluable when making decisions that have significant tax consequences.

Accountants: Precision in Tax Filing and Compliance

Accountants assist with the accurate preparation and filing of your tax returns, ensuring that your IRA contributions and withdrawals are properly reported. They can help you:

• Accurately report your IRA contributions and distributions on your tax return.
• Ensure you are claiming all eligible tax deductions related to your IRA.
• Provide insights into the tax implications of your overall financial situation.

While they may not offer comprehensive financial planning advice, their expertise is essential for tax compliance.

Estate Planners: Integrating IRAs into Your Legacy

Estate planners specialize in helping you manage and distribute your assets according to your wishes after your death. They can help you:

• Incorporate your IRA into your overall estate plan.
• Understand the tax implications for your beneficiaries inheriting your IRA.
• Optimize your IRA beneficiary designations to minimize taxes and ensure a smooth transfer of assets.

Proper estate planning is crucial for ensuring your IRA benefits your loved ones as intended.

The Role of Brokerage Firms

Brokerage firms provide platforms for opening and managing IRA accounts. While they offer access to a wide range of investment options, they typically do not provide personalized financial advice. It's essential to do your own research or consult with a financial advisor before making investment decisions within your IRA.

When to Seek Professional Help

Consider seeking professional guidance if you:

• Are unsure whether a Roth or Traditional IRA is right for you.
• Have complex financial circumstances, such as self-employment income or significant debt.
• Are considering a Roth IRA conversion.
• Want a comprehensive retirement plan tailored to your specific needs.
• Simply feel overwhelmed by the complexities of retirement planning.

Investing in professional advice can be one of the most valuable investments you make in your financial future. The peace of mind and potential for improved outcomes can far outweigh the cost.

Understanding the Rules: Regulatory Oversight by the IRS

Having made the comparison of both Roth and Traditional IRAs, it's crucial to acknowledge that the decision of which IRA to use is not always straightforward. While this guide provides valuable insights, individual financial circumstances vary significantly, making personalized advice essential. It's equally important to understand that the operation of IRAs is subject to a stringent regulatory framework overseen by the Internal Revenue Service (IRS). This section delves into the IRS's crucial role in ensuring compliance and maintaining the integrity of the retirement savings system.

The IRS as Guardian of Retirement Savings

The IRS serves as the primary regulatory body overseeing Individual Retirement Accounts. Its mandate is to enforce the complex web of rules and regulations governing contributions, distributions, and other aspects of IRA management. The IRS ensures that IRAs are used for their intended purpose: to help individuals save for retirement in a tax-advantaged way.

This oversight is essential for several reasons:

• Preventing Abuse: Without proper regulation, IRAs could be exploited for tax avoidance or other improper purposes.

• Ensuring Fair Treatment: Consistent enforcement of the rules ensures that all taxpayers are treated fairly and equally.

• Maintaining System Integrity: Strong oversight helps maintain public trust in the retirement savings system.

Key Areas of IRS Oversight

The IRS's regulatory authority extends to nearly every aspect of IRA operation. Here are some key areas of focus:

Contribution Limits and Eligibility

The IRS sets and enforces annual contribution limits for both Roth and Traditional IRAs. These limits are subject to change, so it's crucial to stay informed about the current rules. The IRS also establishes income limits for Roth IRA eligibility, preventing high-income earners from benefiting unduly from this tax-advantaged account.

Distribution Rules and Penalties

The IRS dictates the rules governing distributions from both Roth and Traditional IRAs. This includes defining what constitutes a qualified distribution from a Roth IRA, as well as setting the age at which required minimum distributions (RMDs) begin for Traditional IRAs. The IRS also imposes penalties for early or improper withdrawals, which can significantly erode retirement savings.

Reporting Requirements

IRA custodians are required to report all contributions and distributions to the IRS. This helps the IRS track IRA activity and ensure compliance with the rules. Taxpayers are also required to report IRA activity on their tax returns, providing another layer of oversight.

Staying Informed: Your Responsibility

The IRA landscape is dynamic. Tax laws and regulations can change, so staying informed is crucial. The IRS website (irs.gov) is a valuable resource for up-to-date information on IRA rules, regulations, and guidance.

Consulting with a qualified tax professional or financial advisor is also highly recommended. They can help you navigate the complexities of the IRA system and ensure that you comply with all applicable rules. Failure to comply with IRS regulations can result in penalties, taxes, and other adverse consequences, undermining your retirement savings goals. Proactive management and staying informed is the best defense against compliance issues.

Tools for Informed Decisions: Retirement Calculators and Resources

Having made the comparison of both Roth and Traditional IRAs, it's crucial to acknowledge that the decision of which IRA to use is not always straightforward. While this guide provides valuable insights, individual financial circumstances vary significantly, making personalized advice essential. Fortunately, several tools and resources are available to empower you to take a more proactive and informed approach to your retirement planning journey. Let’s delve into some of these valuable resources.

Retirement Calculators: Projecting Your Future

Retirement calculators are invaluable tools that allow you to estimate your future retirement income needs and assess how different IRA choices may impact your long-term financial security. These calculators typically consider various factors such as your current age, income, savings, estimated retirement age, and expected rate of return.

By inputting different variables, you can explore various retirement scenarios. Consider how contributing to a Roth versus a Traditional IRA could affect your retirement income based on your projected tax bracket in retirement.

It’s important to understand that retirement calculators provide estimates and should not be considered definitive financial advice. They offer a valuable framework for understanding the potential outcomes of different savings strategies.

Utilizing Retirement Calculators Effectively

When using a retirement calculator, consider the following:

• Be Realistic with Assumptions: Input realistic estimates for your expected rate of return, inflation rate, and life expectancy. Overly optimistic assumptions can lead to inaccurate projections.

• Consider Taxes: Some calculators allow you to factor in estimated taxes during retirement. This is crucial for comparing Roth and Traditional IRAs, as the tax implications differ significantly.

• Explore Different Scenarios: Use the calculator to explore how different contribution amounts, investment allocations, or retirement ages might affect your retirement income.

• Regularly Update: As your financial circumstances change (e.g., income increases, job changes), update the calculator to reflect these changes and ensure your retirement plan remains on track.

Government Websites and Financial Literacy Programs

Beyond retirement calculators, a wealth of information and resources is available from government websites and financial literacy programs. These resources can help you expand your knowledge of retirement planning, investing, and financial management.

Government Resources

The U.S. government provides several resources to help individuals plan for retirement.

• The Social Security Administration (SSA): The SSA website (ssa.gov) offers information about Social Security benefits, eligibility requirements, and how to estimate your future benefits.

• The Employee Benefits Security Administration (EBSA): A division of the Department of Labor, EBSA (dol.gov/agencies/ebsa) provides information about retirement plans, including IRAs, and your rights as a plan participant.

• The Internal Revenue Service (IRS): The IRS website (irs.gov) provides detailed information about IRA rules, contribution limits, tax implications, and required distributions. Be sure to consult the latest IRS publications and forms.

Financial Literacy Programs

Numerous non-profit organizations and educational institutions offer financial literacy programs designed to empower individuals to make informed financial decisions.

These programs often cover topics such as budgeting, saving, investing, debt management, and retirement planning.

• The Financial Planning Association (FPA): FPA (fpanet.org) offers resources and tools to help individuals find qualified financial advisors and access financial education materials.

• The National Endowment for Financial Education (NEFE): NEFE (nefe.org) provides resources and programs to promote financial well-being and education.

• Local Community Organizations: Many community organizations and libraries offer free or low-cost financial literacy workshops and seminars.

By leveraging retirement calculators, government websites, and financial literacy programs, you can gain the knowledge and tools necessary to make well-informed decisions about your IRA and other retirement savings strategies. Remember, taking a proactive approach to your retirement planning is crucial for achieving your long-term financial goals.

Real-World Examples: Case Studies for Clarity

Having explored the core features of Roth and Traditional IRAs, it's crucial to acknowledge that the decision of which IRA to use is not always straightforward. While this guide provides valuable insights, individual financial circumstances vary significantly, making personalized advice paramount. To illustrate how different scenarios can influence the optimal choice, let's examine a few hypothetical case studies.

Case Study 1: The Young Professional

Imagine Sarah, a 25-year-old software engineer earning $60,000 annually. She anticipates her income will increase significantly throughout her career.

Given her current tax bracket and the expectation of higher future earnings, a Roth IRA might be more advantageous.

By paying taxes on her contributions now, she can enjoy tax-free growth and withdrawals during retirement, potentially saving a substantial amount if her income and tax bracket rise as projected.

Furthermore, the flexibility to withdraw contributions (not earnings) penalty-free in case of emergencies is a valuable benefit for someone at this stage in life.

Case Study 2: The Mid-Career Manager

Consider Mark, a 45-year-old marketing manager earning $120,000 per year. He's contributing to his company's 401(k) and wants to supplement his retirement savings.

Mark is currently in a relatively high tax bracket. A Traditional IRA might offer immediate tax relief.

His contributions could be tax-deductible, reducing his current taxable income. This could be particularly beneficial if he anticipates being in a lower tax bracket during retirement.

However, he needs to carefully consider his eligibility for deductions, as his income and participation in a company retirement plan may limit or eliminate the deductibility of Traditional IRA contributions.

Case Study 3: The Near-Retiree

Meet Emily, a 60-year-old teacher earning $75,000 annually. She's nearing retirement and has accumulated savings in a taxable brokerage account.

Emily might consider a Roth conversion, transferring funds from her taxable account to a Roth IRA.

This would involve paying taxes on the converted amount now, but it would shield those assets from future taxes and Required Minimum Distributions (RMDs).

This strategy can be particularly appealing if Emily anticipates leaving a significant inheritance to her beneficiaries, as Roth IRAs offer tax-free growth and withdrawals for heirs.

Case Study 4: Risk Tolerance and Investment Horizon

Consider David and Maria. Both are 35 years old, but David has a higher risk tolerance with a long-term investment horizon, while Maria prefers more conservative investments.

In David's scenario, the potential for higher growth within a Roth IRA, and its subsequent tax-free advantages, makes it a compelling option.

Even with potentially volatile investments, the tax-free nature of qualified withdrawals offers significant benefits in the long run.

Maria, on the other hand, might benefit from a Traditional IRA, especially if she's focusing on safer investments with lower potential returns.

The immediate tax deduction can provide a small but consistent return, making it an attractive choice given her risk profile.

The Importance of Personalized Advice

These case studies are simplified examples, and individual financial situations are far more complex. Factors such as debt, other investments, estate planning goals, and specific retirement needs all play a role in determining the best IRA strategy.

Therefore, it's essential to consult with a qualified financial advisor to assess your unique circumstances and make informed decisions tailored to your individual goals and risk tolerance.

So, when it comes to Roth vs. Traditional IRA, the difference between really boils down to when you want to pay your taxes. Thinking about your current and future tax brackets can make choosing the right path a whole lot easier. Ultimately, the best choice is the one that helps you sleep soundly knowing you're building a brighter financial future!