Melanny is 35 years old and has a stable job. She expects her income to increase moderately, but she is unsure how much her tax bracket will change. Melanny is considering contributing to both Roth and traditional accounts to balance her tax burden now and in retirement. What is the best strategy for Melissa?
Answer
A
contribute 100% to a traditional IRA to maximize tax deductions now
B
contribute 70% to a traditional IRA and 30% to a Roth IRA to reduce taxes now and later
C
contribute 100% to a Roth IRA to maximize tax-free withdrawals in retirement
D
contribute 50% to a traditional IRA and 50% to a Roth IRA for balance
Explanation
Because Melanny is unsure how her tax bracket will change, splitting contributions between traditional and Roth accounts can provide tax diversification. Traditional contributions may reduce taxable income now, while qualified Roth withdrawals can be tax-free in retirement. A 50/50 split is the balanced strategy among these choices; putting everything in one account would rely more heavily on one prediction about future tax rates.
AI-written and checked against the verified answer.