2006-12-07 04:28:14 · 5 answers · asked by Frenchy 2 in Business & Finance ➔ Investing
When you take money out of a ROTH it is not taxed, whereas a Traditional is taxed. When putting into a ROTH it will not be tax deductible, whereas a Traditional is.. They have their tradeoffs.
2006-12-07 05:02:24 · answer #1 · answered by sis79 2 · 0⤊ 0⤋
This is too complex of a topic to answer in a post. You would be better of to read the IRS publication (http://www.irs.gov/pub/irs-pdf/p590.pdf) for details. For quick comparision check http://www.americanfunds.com/retirement/ira/comparison-chart.htm
The rule of thumb is that Roth IRA is better than Traditional IRA, but it could quite depend on your situation - age, income, etc. (For example, assuming you are single, then if your MAGI is above 110K you may not contribute to Roth; If it is above 60K and you have retirement plan in work then Traditional IRA is also not deductible. Then on top of that in 2010 you could convert the Traditional into Roth without paying taxes on the non-deductible contribution .. and so on, and so on).
So if you want a quick fix - put them into Roth. Keep in mind that the $5K you want to invest annually might be more than you could put (unless you are 50 or over), since the annual max is $4K (however, since you are starting payments late in the year, you will be able in the short run to contribute the amount you desire, just make sure you make contributions to the earliest year possible - for example in January to mid April contribute to the 2006 IRA, not to the 2007 IRA).
For better customized response you would be better off talking to someone who understands the topic well, and who could give you advice based on your input (marital status, age, income, long term assets planning, etc).
2006-12-07 13:20:05 · answer #2 · answered by _Some1_ 1 · 0⤊ 0⤋
Since it is post-taxed as noted above, the money that you would have spent on taxes up front is working for you, rather than just giving it to the government up front. Roth is better as long as you are permitted to do it. (There are cap restrictions such as you can't make more than a certain amount of money, etc.)
2006-12-07 12:34:45 · answer #3 · answered by Dujo 2 · 0⤊ 0⤋
Roth is post taxed $$ and withdrawls at retirement are not taxed. IRA is pre -tax $$ and is taxable upon withdrawls in most cases
2006-12-07 12:31:18 · answer #4 · answered by golferwhoworks 7 · 0⤊ 0⤋
The Roth is tax free and the traditional is tax deferred.
2006-12-07 18:07:01 · answer #5 · answered by Anonymous · 0⤊ 0⤋