Traditional vs Roth IRA's for Travel Agents

Individual Retirement Account's (IRA's) allow you to save for retirement and save significant amount of money on your taxes if done right. If your income is higher than the IRS income limit for a Roth IRA, then generally a Traditional IRA is your only option between the two (for the year). It's hard to predict what your income, let alone federal and state tax rates will be when you retire. Given today's historically low tax rates and the $21+ trillion US national debt, many economists expect the income tax rates to rise. However, nobody can predict the future and you're also not locked to opening just one type of IRA. Since contribution limits are per person, not per IRA account, you can contribute to both in any variation up to the yearly contribution limit or your earned income (whichever is lower). Keep in mind, you can only contribute to an IRA, if you earned an income for the year. So if you earned $4,000, you're only eligible to contribute $4,000, rather than the higher contribution limit for the year. You can contribute at any time during the year up until the April deadline of the following year.




Immediate tax deduction

You avoid paying taxes now on the amount of your contributions

Your money grows

Tax deductions

Simple explanation



No immediate tax deductions

You avoid paying taxes later when you start taking money out


Anyone who earns an income

Reduce your current taxable income, but you'll owe taxes when you retire.

$6,000 ($7,000 if over age 50)

Must contribute before age 70.5


Your contributions

Max contribution/year

Age restrictions

Below certain income limits set by the IRS

Don't affect your current income, but grow completely tax free.

$6,000 ($7,000 if over age 50)



After age 59.5

10% penalty and taxed at the income bracket at the time of withdrawal.

Withdrawing for qualified expenses*. You'll still owe income taxes though.

At age 70.5

contribution withdrawals

Early withdrawal penalty

10% penalty waived if

Required minimum withdrawals

5 years after contributing

10% penalty unless withdrawing contributions after contributing for 5 years.

Withdrawing contributions after 5 yrs or up to $10k of earnings for qualified expenses*


Traditional IRA Benefits & Considerations

Remember, your contributions to a Traditional IRA will lower the income you will be taxed on. This is not only great for paying less taxes, but also for qualifying for child tax credit, student loan interest deduction, other taxable deductions and government assistance programs. Keep in mind, Traditional IRAs will require you to start withdrawing RMD's (required minimum distributions) at age 70.5. This may be drawback for individuals who want to continue working, individuals who didn't save enough for retirement or if your investments aren't doing so great. Roth IRA's do not have required minimum distributions, therefore giving you an option to allow your IRA to come back up as the market rebounds.

Roth IRA Benefits & Considerations

On the other hand, a Roth IRA does not save you any taxes in your contribution year, but you won't have to pay taxes when you withdraw. Since the IRS already received their taxes, contributions to your Roth IRA can be withdrawn penalty & tax-free at any time, even before age 59.5 as long as you meet the 5 year waiting period. Additionally, after 5 years of contributing, you may also withdraw your earnings on your contributions up to $10,000 penalty-free, to pay for qualified expenses*. Any beneficiaries of a Roth IRA will also not owe any taxes on the withdrawals they make (but they may owe estate taxes). If you're nearing age 70.5 and you don't want to be forced to withdraw, a Roth IRA becomes a more appealing choice.

* Qualified expenses refer to: qualified first-time home buyers (may also be used for child, grandchild, parent or other ancestor.), higher education expenses, unreimbursed medical expenses in access of 10% of gross income, health insurance premiums while unemployed, disability and other IRS mandated qualifying reasons.

What's the best IRA for a Travel Agent?

If your income for any given year is high, contribute to a Traditional IRA to immediately lower your income taxes. If your income is lower, contribute to a Roth IRA to take advantage of the lower tax bracket. For example, if you're in the 10% or 12% marginal tax bracket, it's difficult to justify that tax rates will be lower when you retire, so therefore a Roth IRA becomes the better choice at the time. Having both IRA's allows you take advantage of the tax situation you're in and give yourself options from which IRA to withdraw from before and after retirement.