Bree expects to be in a much higher tax bracket when she retires than she is now, so she wants to invest in a retirement account in which her withdrawals will be tax-free. One way for her to achieve this is through a traditional IRA.

Question

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The earnings of a traditional IRA are tax-deferred, not tax-free. With a traditional IRA, earnings are taxed as income at the time they are withdrawn. A better choice for Bree would be a Roth IRA. With a Roth IRA, Bree would not receive a deduction in the period when she contributed to the IRA, but would be able to withdraw the earnings tax-free after she retires (assuming that she is at least 59½).

Bree Expects to Be in a Much Higher Tax Bracket