Why a Roth IRA is the ‘holy grail’ retirement account—no matter your income

If you’re unfamiliar, it’s important to note the differences between a traditional IRA and a Roth IRA. The biggest one comes down to when the investor pays taxes: With a traditional IRA, you can get a deduction when you contribute, and pay taxes when you withdraw funds in retirement, similar to a 401(k). With a Roth, it’s the inverse. You pay taxes upfront, and then contributions grow tax-free forever, assuming you meet a few requirements like withdrawing the funds after age 59 and a half.

The difference makes the Roth a favorite among financial planners and policy makers, says IRA expert Ed Slott, who recently released the book The Retirement Savings Time Bomb Ticks Louder. Not only is tax diversification important in retirement, but many people may not realize just how big of a tax bill they will face in their later years if most of their assets are tied up in accounts like traditional IRAs and 401(k)s.

A Roth, though, means no tax worries later. And given how low tax rates are now—and the fact that they could rise to pre-2018 levels in a little more than a year—it makes a lot of sense to contribute now.

“To me, it’s the promised land, it’s the holy grail,” says Slott. “It’s the best possible retirement account anyone could own.”

The trade off, of course, is that to get all of those benefits, investors must pay taxes on contributions now, which many are loathe to do. But that’s the wrong way to think about it, Slott says. He makes the point thattaxes will need to be paid at some point, and rates are “on sale” now and very likely to go up at some point in many Americans’ lifetimes, especially given the national deficit.

Slott adds that many people expect to end up in a lower tax bracket in retirement relative to their working years—thus making a traditional IRA a better deal—but that is often not the case.

So it’s an ideal time to pay ahead and enjoy compounding returns for decades to come—in fact, Slott calls it the “tax deal of the century.” (That said, there is no guarantee of what rates will be in the future.)

Another Roth perk: Unlike with a traditional IRA, there are no lifetime required minimum distributions, or RMDs—the requirement that you cash out a certain portion…