With the different features and benefits that apply to the various types of individual retirement accounts (IRAs) and plans, choosing the one that is most suitable can be a tricky business. In some cases, choices can be narrowed down by eliminating the plans for which you are ineligible. In this article, we'll look at some scenarios and the factors that should be considered when you are faced with choosing which IRA is best for your golden years.

Elegible for both a Roth IRA and a Traditional IRA

For an individual who is eligible for both a Traditional IRA and a Roth IRA, making the choice usually depends on whether the individual is eligible (or wants) to claim the deduction for the Traditional IRA contribution, and the individual's current tax bracket compared to the projected tax bracket during retirement. This choice is determined by which plan results in lower taxes and more income.

For an individual who is eligible for a Traditional IRA contribution, a Roth IRA contribution and a salary deferral contribution to a 401(k) plan, but cannot afford to contribute the maximum amount to the 401(k) plan and the IRA at the same time, a decision must be made as to whether it is more beneficial to choose to make one, two, or all three work. Some of these concepts can also apply if the individual has the option of contributing to both a traditional 401(k) and a Roth 401(k).)

Conclusion

For those who are eligible to fund multiple types of retirement accounts, choice is not an issue for those who have the money to fund them all. For those who can't, choosing which to fund can be challenging. In many instances, it boils down to whether the individual prefers to take the tax breaks on the back end with Roth accounts, or on the front end with Traditional accounts. The purpose of funding the account, such as retirement versus estate planning, is also an important factor. A competent retirement planning advisor can help those facing these issues to make practical choices.