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Guido Mieth | Moment | Getty Images<\/p>\n<\/div>\n<\/div>\n<\/div>\n
Traditional IRAs are the oldest and most common type of IRA<\/a>, owned by 31.3% of U.S. households as of mid-2023, according to research from the Investment Company Institute.<\/p>\n Nearly two-thirds of families with traditional IRAs have accounts with retirement plan rollovers, and 43% made contributions on top of rolled over funds, ICI found. \u00a0<\/p>\n These accounts continue to grow, and many retirees don\u2019t have a plan to withdraw the money, experts say.<\/p>\n<\/div>\n \u201cYour IRA is an IOU to the IRS,\u201d said Slott, who is also a certified public accountant.<\/p>\n Starting at age 73, pre-tax retirement accounts are generally subject to required minimum distributions<\/a>, or RMDs, based on your previous year-end balance and a life expectancy factor<\/a>.<\/p>\n By comparison, Roth accounts, which are funded with after-tax dollars and grow tax-free, don\u2019t have RMDs until after the accountholder\u2019s death. But these accounts are less common. As of mid-2023, only 24.3% of households had Roth IRAs, according to ICI.<\/p>\n<\/div>\n Under the Tax Cuts and Jobs Act enacted by President Donald Trump<\/a>, income tax brackets<\/a> have been lower since 2018. That provision could be extended past 2025<\/a> under the current Republican-controlled Congress.<\/p>\n Slott argues it\u2019s better to pay income taxes now at \u201cbargain basement rates\u201d than withdrawing from a pre-tax IRA when rates could be higher, depending on future legislative changes.<\/p>\n You can do that by contributing to Roth accounts or making so-called Roth conversions<\/a>, which incur an upfront bill, but grow tax free. With Roth accounts, \u201cthere\u2019s no obligation to share with Uncle Sam,\u201d he said.<\/p>\n Plus, Roth accounts avoid tax issues for non-spouse heirs who inherit your IRA<\/a> since most beneficiaries must follow the \u201c10-year rule,\u201d and empty accounts within 10 years of the original owner\u2019s death.<\/p>\n<\/div>\n While building a bucket of tax-free retirement savings is appealing to many investors, there could be some trade-offs, experts say.\u00a0<\/p>\n With only Roth accounts, \u201cyou\u2019re taking away choice from individuals \u2026 because they have fewer options down the road,\u201d certified public accountant Jeff Levine said at the Horizons conference session.\u00a0<\/p>\n You should aim to incur taxes at the lowest rates possible, Levine told CNBC. By paying all your taxes in advance, there\u2019s no \u201cdry powder\u201d to withdraw from pre-tax accounts in future lower-income years.\u00a0<\/p>\n<\/div>\n Plus, you could miss future tax planning opportunities, he said.<\/p>\n For example, if you\u2019re philanthropic, you can make so-called qualified charitable distributions<\/a>, or QCDs, at age 70\u00bd or older, which transfer money directly from an IRA to an eligible non-profit, Levine said.<\/p>\n The move lowers your adjusted gross income since you can use the withdrawal to satisfy RMDs and helps reduce your pretax balance for smaller future required withdrawals.\u00a0\u00a0<\/p>\n<\/div>\n<\/div>\n\nLeverage \u2018bargain basement rates\u2019<\/h2>\n
Roth-only strategy could mean \u2018fewer options\u2019<\/h2>\n
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