what's better, traditional IRA's or Roth IRA's?

Question

i know roth IRA's are taxed before you invest.

Answer 1

Depends - on lot of factors.

FYI:
Most of the answers above are either partially correct or completely wrong...For e.x. the limit is $4000 for 2006 and not $3000. Also you do not pay tax on your earnings/income in ROTH IRA..

If you want to bring down you taxable income NOW ( for Tax Year 2006 for example ), you can contribute to traditional IRA.

If you want to pass on your earnings and everything to your kids, ROTH IRA is good. No such thing in Trad. IRA.

You are REQUIRED to withdraw from T. IRA once you reach 57 or 58 years old and pay taxes at that time, based on whatever tax bracket you're in at that time. You are never required to withdraw anything from ROTH IRA

Also you need to qualify for full contribution per year in both IRAs...based on your AGI, married/single or married filling jointly etc.

If you have lot of time before you will need money, park your money in ROTH IRA, eventhough you don't get any tax break today. If you think you will be retiring soon....time is against you...Compounding will never come into play..In that case, I thinkn you will be better off, taking the tax break today by contributing to Traditional IRA.

As I said, there are so many variables that applies differently to different individuals...You need to consult with your tax/accountant guy/gal to get a better advice as they are most likely to know your financial situation than anyone on the internet.

Answer 2

The Roth is much better. Look at this way. You invest $3000/year for 30 years in a good growth mutual fund. You have put in $90,000.
In the Traditional you saved the taxes on the $90,000 over the 30 years. At the end of the 30 yrs assuming a 12% rate of return, you would have just under $400,000. Would you rather pay the taxes on the money you pull out ($400,000) Traditional, or the taxes on the $3000/yr (Roth). That should actually be an easy one. With the Roth that $400,000 would be completely tax free.

Answer 3

Roth IRA's you save on taxes when you retire. Don't have to pay taxes on what you earned. You get a tax break when you file every year if you make a contribution.

Either is good to invest in as long as you start at a younger age. Any type of investment will help you out when you retire.

Answer 4

When you are young, it's best to put money into a Roth , since there is no tax liability when you retire. The amount you can put into a Roth is limited, so ultimately the bulk of your investments will probably be in company 401ks, which are even better since you can get some company match.

If you can save more when your earnings are lower (in your youth), then you can avoid taxes completely in your retirement, when every penny counts.

Answer 5

actually, you are required to begin withdrawls from a traditional ira at 70 1/2 not 57. and while the limit is 4,000/ year now, it will be 5,000 in 2007 then adjusted for inflation.

if you think you'll make more than 50,000 at any point in your life, go with the Roth AND open a 401k for the tax deferral.

Answer 6

IRA's are tax deffered. You pay taxes on proceeds when you take a draw at 59 !/2 or older.
Roth are front end taxed. You are taxed on the deposit and tax deffered at time of withdrawal.
From a tax stand point the Roth is better since taxes will continute to increase.

Answer 7

If you think taxes will go down over the course of your life, traditional IRA is better.

If you think taxes will rise over the course of your life, Roth is better.

If you will ever buy a house and want to w/d the money from retirement, Roth is better.