A major advantage of a traditional IRA over a Roth IRA is that the contributions to a traditional IRA are often deductible while contributions to a Roth IRA are never deductible. On the other hand, the distributions from a Roth IRA are non-taxable if held in the account for five years and not distributed prematurely. This means that all of the earnings that accumulate in the account will also be non-taxable.
Premature distributions from both Roth IRAs and Traditional IRAs are taxable and subject to a 10% penalty. Distributions are generally treated as premature if made before you reach age 59 1/2. However, such distributions from a Roth IRA offer a certain advantage. They are treated, in most cases, as coming first from contributions, and therefore are neither taxable nor subject to a penalty.
In addition, you don’t have to take minimum distributions at age 73 from a Roth IRA. You can let them accumulate, continuing their tax-free growth. Effective January 1, 2023, Traditional IRAs, on the other hand, do require that distributions begin when you reach age 73.
Your particular situation and needs will determine which IRA works best for you.
You should consult a tax professional when applying any of these tax planning suggestions.
