IRAs are tax-advantaged accounts that people use to save for retirement and include the 401Ks. These accounts operate such that when you deposit money, say through a retirement plan, you don’t have to pay income tax on that portion of the money. However, once you start withdrawing the money, it’s considered ordinary taxable income, which can sometimes be pretty expensive. In contrast, the Roth IRA allows you to first pay taxes before putting money into your retirement plan. This ensures that you won’t have to pay taxes when you pull out the money because taxes were deducted before the money was deposited into the account. 
You might be wondering why such strategies are necessary since you still end up paying taxes in both scenarios. It’s obvious that your tax bracket or tax rates will be different during your contribution and withdrawal periods. With the Roth IRA, the main selling point is that you pay your taxes when your rates are lower, thus eliminating the huge taxes you’d potentially pay in the future.

As mentioned in some of our previous episodes, after age 72, a person must make yearly minimum withdrawals from their traditional IRA accounts. For some people, the minimum withdrawal is far greater than their yearly spending. This extra income can potentially take you to a higher tax bracket, which equals more taxes. Moreover, recent tax amendments adjusted the period in which your heirs can take out money. The IRA initially allowed for a 20 to 30-year period in which your children or anyone in charge of your assets can withdraw the money after your death. However, it’s currently limited to 10 years, which means that people will be forced to pull out huge sums of taxable money over a short period of time, thereby possibly raising their tax brackets. With this in mind, it would be best if you protect yourself from such legislation by adopting strategic Roth conversions and withdrawal strategies.