Ask This Question to Help Clients Decide: Roth or Traditional IRA?

A common question we get as advisors is, “should I contribute to a Roth or a traditional IRA?”

When this comes up, I'll sometimes use another question to help the client see the difference and make a decision. Now, this question usually has the client leaning towards Roth, but it's up to you help them figure out which one makes the most financial sense and is the most beneficial to them. I say this often to my younger clients who aren’t sure about the differences between Roth and traditional IRAs.

And here it is: “Let's say you're a farmer. Would you rather pay the tax on a small seed that you buy during the planting season? Or would you rather pay tax on the harvest that you grew when you bring it to the market?” That's it.

Hopefully that makes sense––the difference between Roth and traditional IRAs and paying tax on the seed versus the harvest. And, hopefully this simple question helps in conversations as you think through their income now, income later, tax rates, and everything like that.