Navigating Traditional & Roth IRAs: What Health Professionals Need to Know

As a health professional, you're likely no stranger to long hours, demanding schedules, and the rewarding but challenging nature of your work. But while you’re busy taking care of others, it's crucial not to overlook taking care of your financial future. Understanding the ins and outs of Individual Retirement Accounts (IRAs) is a vital part of this process. Two popular options, the Roth IRA and the Traditional IRA, offer different advantages depending on your financial situation, tax bracket, and retirement goals. Here's what you need to know to make an informed decision.

Roth IRA vs. Traditional IRA: What’s the Difference?

When it comes to retirement savings, Roth and Traditional IRAs are two of the most common options. Both are designed to help you save for retirement and offer tax advantages, but they differ in how and when you receive tax advantages.

Traditional IRA

Contributions are often tax-deductible in the year they are made, which can lower your taxable income. However, you will pay taxes on withdrawals during retirement, including both contributions and earnings. This option is often appealing if you expect to be in a lower tax bracket during retirement.

A Traditional IRA allows you to contribute pre-tax income, which can lower your taxable income in the year you make the contribution. Taxes are then paid when you withdraw the money in retirement.

Roth IRA

Contributions are made with after-tax dollars, meaning you won't receive a tax break in the year of contribution. However, your withdrawals during retirement are tax-free, including the earnings on your contributions. This can be beneficial if you expect to be in a higher tax bracket in retirement or if you anticipate your investments will grow substantially.

income limits and eligibility

As a health professional, your income level might be a deciding factor in whether you qualify for a Roth IRA. For 2024, the income limits for contributing to a Roth IRA are as follows:

Single Filers

You can contribute the full amount if your modified adjusted gross income (MAGI) is less than $153,000. The contribution limit phases out between $153,000 and $168,000.

Married Filing Jointly

The full contribution is allowed if your MAGI is less than $228,000. The phase-out range is between $228,000 and $243,000.

There are no income limits for contributing to a Traditional IRA, but if you or your spouse are covered by a retirement plan at work, the tax deductibility of your contributions may be limited based on your income.

tax considerations for health professionals

For many health professionals, income tends to increase over time, especially as you gain experience and possibly move into higher-paying positions. This is an important factor to consider when choosing between a Roth and Traditional IRA:

If you’re early in your career and expect your income (and tax bracket) to increase, contributing to a Roth IRA could be advantageous. You pay taxes on the contributions now while you’re in a lower bracket and enjoy tax-free withdrawals in retirement.

If you’re at or near your peak earning years, a Traditional IRA might be more beneficial. The immediate tax deduction can help reduce your taxable income now, with the expectation that you'll be in a lower tax bracket after you retire.

Required Minimum Distributions (RMDs)

One key difference between Roth and Traditional IRAs is the requirement for minimum distributions:

Traditional IRA:
You are required to start taking minimum distributions at age 73 (starting in 2024), regardless of whether you need the money. These distributions are taxed as ordinary income.

Roth IRA:
There are no required minimum distributions during your lifetime, making it a flexible tool for estate planning or for those who want to leave a tax-free inheritance to their heirs.

Maximizing Contributions

As of 2024, the contribution limit for both Roth and Traditional IRAs is $7,000 per year ($8,000 if you’re age 50 or older). Given the nature of your profession, where incomes can vary greatly based on specialization, location, and experience, it's wise to maximize your contributions when possible. 

For those who earn too much to contribute directly to a Roth IRA, a Backdoor Roth IRA might be an option. This involves contributing to a Traditional IRA and then converting those funds to a Roth IRA. This strategy can be complex, so it’s important to consult with a financial advisor to ensure you’re following the correct procedures.

Health Savings Accounts (HSAs): A Complementary Strategy

For health professionals with high-deductible health insurance plans, a Health Savings Account (HSA) can complement your retirement savings strategy. HSAs offer triple tax benefits: contributions are tax-deductible, growth is tax-free, and withdrawals are tax-free when used for qualified medical expenses. After age 65, you can withdraw funds for any reason without penalty (though non-medical withdrawals are taxed as income, similar to a Traditional IRA).

Which Is Better for Your Retirement Plan?

Deciding between a Roth IRA and a Traditional IRA depends on several factors, including your current and anticipated future tax situations, retirement goals, and income levels.

1. Current vs. Future Tax Rates:

  • Roth IRA: Ideal if you expect your tax rate to be higher in retirement than it is now. By paying taxes on your contributions today, you can avoid potentially higher taxes on withdrawals in the future.

  • Traditional IRA: May be better if you anticipate your tax rate to be lower in retirement. You get a tax break now and pay taxes at a potentially lower rate later.

2. Income Considerations:

  • Roth IRA: Useful if your income is above the contribution limits for direct Roth IRA contributions. Even if you exceed the income limits, you can still use a backdoor Roth IRA strategy to fund your account.

  • Traditional IRA: Contributions are deductible up to certain income limits, which can provide immediate tax benefits if you qualify.

3. Retirement Timing and Needs:

  • Roth IRA: Offers more flexibility with withdrawals and no RMDs, which can be beneficial if you plan to continue working part-time or have other sources of retirement income.

  • Traditional IRA: Requires RMDs starting at age 73, which can be a consideration if you prefer not to manage additional mandatory withdrawals.

Selecting the right plan for you involves evaluating your current financial situation, future tax expectations, and retirement goals. For health professionals, a Roth IRA might offer greater flexibility and tax-free growth, especially if you anticipate higher income or tax rates in retirement. However, a Traditional IRA provides immediate tax benefits and could be advantageous if you expect to be in a lower tax bracket when you retire.

Ultimately, working with a financial planner can help you navigate these options and tailor a retirement plan that aligns with your unique circumstances. By considering your income, tax situation, and retirement goals, you can make an informed decision and secure a comfortable and financially stable retirement.

If you’re unsure which IRA is right for you, or if you need assistance with retirement planning, don’t hesitate to reach out. A financial planner can provide personalized advice and help you craft a strategy that meets your needs and supports your long-term financial goals.

With Outside The Box Financial Planning, you can trust that you’re working with a fiduciary, Certified Financial Planner™️ practitioner focused on your financial well-being. We provide tailored advice on retirement planning, asset management, tax strategies, and beyond, helping you navigate potential obstacles with confidence.


Ivan Havrylyan