 | | | Traditional IRA versus Roth IRA: Comparing IRAs | | Proceeds from employer-sponsored retirement plans may fund part of your retirement. Social Security may play a part, too. But after doing the math, you may find that those two sources alone won't cut it. Perhaps you need to do some extra investing outside of your employer-sponsored plan. | |
| Individual retirement accounts, or IRAs, can be a good option. But which one should you select—a traditional IRA or a Roth IRA? | |
| For most people, if you qualify, the Roth IRA might be the better choice for several reasons. First, while you pay taxes on money you withdraw from a Traditional IRA, you won’t have to do so when taking distributions from your Roth IRA. That's right, your earnings aren't just tax-deferred, as in a Traditional IRA, they're tax-free. That tax-protection could mean more money in your pocket, especially if you wind up in a higher tax bracket later in life. As an added bonus, if you decide to pass on your Roth IRA to your heirs when you die, they can make tax-free withdrawals as well. | |
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Second, Roth IRAs tend to be more flexible than Traditional IRAs. Unlike Traditional IRAs, which force you to stop contributing and start taking distributions at age 70 1/2, you're allowed to contribute to a Roth IRA as long as you want to, providing you continue to work. Postponing that payout means more time for your cash to grow.
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Of course, the Roth IRA isn't right for everyone. For starters, if your adjusted gross income is above a certain level, you aren't eligible to open a Roth IRA. (Consult a tax advisor or IRS publication for the specifics.) And investors who think they'll be in a lower tax bracket in retirement than they are now may find the tax deduction offered on Traditional IRAs an advantage.
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| However, you don't have to just guess. Click the "Comparison" tab on our IRA Calculator to crunch your specific numbers. | |
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