How to make Roth IRAs work for you at any age

By Beth Pinsker

From a teen's first summer job to preparing your accounts for your heirs, you need a smart investment strategy

If you wait until you're 75 to think about your tax strategy in retirement, you could end up with big bills.

It sounds like a simple question: Should I contribute to a Roth IRA or a traditional retirement account?

It's not.

The list of rules governing the Roth treatment of retirement savings is long and not even entirely finished being written yet, as MarketWatch's "Don't Short Yourself" viewers found out in a live interview with retirement expert Jamie Hopkins. Future tax-law changes could be ahead, and the government still hasn't sorted out the final details of things like rolling excess 529 savings into a Roth or turning new Trump accounts for children into Roth accounts later in life.

"We need guidance on these," Hopkins said. "Are they gonna put in restrictions? I don't know yet."

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During the discussion, Hopkins, co-author of the new book "Your Retirement Sketchbook," explained the difference between Roth accounts and traditional retirement accounts, which comes down to the basic question: Do you want to pay tax now, or pay tax later?

"The benefit of a Roth is that you get tax-deferred growth on your investments inside of the account and potentially tax-free withdrawals from it," Hopkins said. In a traditional IRA or workplace plan like a 401(k) or 403(b), it's the opposite; you defer taxes when you put the money in and on the growth, but you pay income tax when you take the money out.

The value proposition changes as you age. Here's how Hopkins broke down the age scenarios:

Children

Minors with earned income can greatly benefit from Roth savings - if they have legitimate earned income - especially because they are likely to earn below the threshold to owe taxes. "So if you're an 18-year-old who's got their very first summer job and they're only making $10,000, it's a great time to use a Roth account," Hopkins said. Their tax bill would be zero, and the growth on the Roth account could compound for 50-plus years potentially.

Young workers

Most employers now offer a Roth 401(k) savings option, and workers can mix and match with traditional pretax deferrals, or change as they go. "When I sit down with individuals, I will go through and say, 'How much can you really afford to save?' If your tax rate is in the 22% bracket or below, that's a great place to be [for Roth]," Hopkins said.

Older workers

If you've been saving all along a career in a traditional tax-deferred plan - because Roth 401(k) options did not become available until 2006, and are still used by less than 20% of participants - is it too late to switch? Hopkins said it was likely a good idea for a 43-year-old worker who wrote in during the livestream to ask about switching; for a 70-year-old who was employed, it was an especially good idea. "Being 70 and still working is actually a great place to be," Hopkins said.

Retirees

If you've saved well in a traditional IRA, once you retire, you have to start thinking about how all that money is going to come out of the account as income. Withdrawals are taxed as ordinary income and are required after age 73 currently - moving, eventually, to 75.

Your taxable income in retirement affects how much you pay for Medicare and how much of your Social Security is taxed. The tax due on deferred accounts will also affect your heirs. Many people in early retirement are now thinking about Roth conversions, which entails taking money out of traditional accounts, paying the tax and then moving the money to the Roth account.

This is a key place where Roths might not make sense for some people, because you have to have the cash available to pay the tax. "If you don't have that, most of the time my answer would be, 'It's not time to do a conversion,'" Hopkins said.

Otherwise, most people with a high IRA or 401(k) balance that won't be spent to zero during retirement might want to think about converting some of their accounts.

"If you can spread your conversions out over a three- to five-year period right before retirement, that is often the sweet spot for conversion," Hopkins said. "Income is coming down, right? If we can stay within our tax bracket, then we have more certainty about what life is going to look like in three to five years from an income standpoint. ... If you have a 30-, 40-year time horizon, it's likely that the break-even point of a conversion will work out for you."

-Beth Pinsker

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03-27-26 1309ET