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Jeff Fleming
Where's the Advantage?
Earnings on a traditional IRA are called "tax deferred" in financial lingo. You will not report interests, dividends or realized capital gains until you withdraw money from the IRA. Roth IRA earnings, on the other hand, are "tax-free" and may be withdrawn without any income tax liability regardless of how well your investments have done, assuming withdrawals are made after age 59 1/2. The compounding of the money that would otherwise be spent on income taxes can have a dramatic impact on the growth of your portfolio.
There are two other major differences between the IRAs in regard to distributions. Traditional IRAs received by beneficiaries as a result of the death of the participant will still be subject to income tax; Roth IRAs will not. Additionally, Roth IRAs are not subject to minimum distribution rules that are currently in effect for traditional IRAs. So you will not be required to withdraw the Roth IRA at age 70 1/2 if you do not need the money. In fact, you may still contribute to a Roth past that age if you have earned income, which you are not allowed to do in a traditional IRA. Although there are substantial differences between these two, I think you will agree that both provide very attractive tax breaks, which serve as additional incentive to fund for your retirement.
See for Yourself
Use our IRA calculator to find out which IRA could produce the most retirement income for you. Go >
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