: Traditional IRA - Worth the refund or not? Long time Money.SE lurker, time for my first question. I'm young and this is the first time I am in a position where I can comfortably max out (,500) my contribution to an IRA

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You should choose Roth vs. Traditional based on your current marginal tax rate, generally. As such, and as you've indicated you have a 25% marginal rate, I would suggest traditional.

Most people in retirement who saved well will pay an average tax rate something in the 15-20% range. Average tax rate is important here: total income divided by total dollars tax paid. That's how much you're paying on the money you're withdrawing.

On the other hand, marginal tax rate is what's relevant for when you save it, because that's what you'll save by choosing traditional - you're looking at just the rate for the last few dollars. Doesn't matter what you paid on average this year, just the rate you'd pay on the dollars you're putting in the IRA.

If your marginal rate is 25%, then you probably should choose traditional - you'll probably end up with more money at the end of the day that way, assuming tax rates stay the same, and you don't end up super rich (and if you do ... congrats, and odds are you won't care about a few thousand dollars from 2017 being taxed each year). If your marginal rate is 15%, then you choose Roth, as odds are you'll pay more than 15% average rate (or at least you probably won't pay much less, and you'll benefit from diversity).

The final note is diversity has some value, if you're on the cusp of one or the other. You can be smart in retirement and withdraw some from Roth some from regular, in order to balance your overall tax rate, particularly if you have better and worse years in your non-IRA income (if you have some non-IRA investment income, or continue working part time or consulting or whatnot). I don't think diversity has a huge value, so don't choose Roth even when you're at 28% just to get some diversity, but if you're on the edge of Roth vs IRA, it might make a small difference in my choice.

But don't forget you may have a chance to convert to Roth down the road, particularly if you have a lean year where you're unemployed six months or something - you can take advantage of that year's low tax rate to convert your traditional-saved-25% IRA to a Roth and pay 15% on the conversion.

Edit: I meant to include a link to JoeTaxpayer's excellent article on the subject, one of several on his site covering the choices and techniques related to Roth vs. traditional IRAs.

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The normal way of thinking about Traditional vs Roth changes once you are talking about maxing out your contribution.

If you are in a position to max out your IRA, and you can't decide whether to go with Roth vs Traditional, then as a rule of thumb I would lean towards Roth since you are effectively putting more money away. The same logic goes for a 401K too if you have the option and are able to max it out either way.

Another (probably minor) benefit of going with the Roth IRA is to get it on record just in case the 5 year rule would ever apply to you.

That being said, what you would do with the 00 savings may be relevant too. If you can pay off a high interest debt with it but otherwise couldn't, that might tip the scales towards the traditional IRA. Another exception to the rule would be if you are in a high tax bracket today but have good reason to believe you won't be when you retire.