Which type of IRA should you contribute to?

Last week we started answering the question “What’s the difference between a regular IRA and a Roth IRA and which one should I use?” by going over how an IRA works and the primary difference between Roth and traditional. This week we’re tackling the second part of the question; which one should you use?

Which IRA you want to use is mostly a matter of when you want to pay taxes.

Since a traditional IRA means paying taxes when you withdraw funds in retirement, most advice says to contribute to a traditional IRA when your current tax rate is higher than what you think it will be in retirement. You’d rather pay the lower rate later than the higher rate now.

A Roth is the opposite. Since you pay taxes on the contribution, but not at withdrawal, the general guideline is to choose a Roth when your current tax rate is lower than what you think it will be in retirement. Pay the lower rate now rather than the higher rate lower.

But it’s not that simple. Keep reading for the more important question: which type of IRA are you eligible to contribute to? The answer can be complicated and may be more important than which one you’d rather choose.