There are some cases when a Roth IRA can be better than a traditional Individual Retirement Account. The Roth account offers some tax advantages particularly for persons facing a significantly lower income in their retirement years. It also offers some serious disadvantages for average people that are still working.
There are also some people that would https://objects-us-east-1.dream.io/can-gold-ira/can-i-buy-gold-with-a-self-directed-ira.html only be able to take advantage of a Roth IRA. The reason for this is the Internal Revenue Code which puts strict income limits on IRAs only people that make less than a certain amount can contribute to them.
Difference between Roth and Regular IRA
The difference between a Roth and a regular IRA is in the way it is taxed. When you contribute to a regular IRA you will not have to pay federal income taxes on the funds until you take them out. When you contribute to a Roth you have to pay your regular federal income tax but there will be no income tax when you take the money out.
A regular IRA could put you in a higher tax bracket when you are retired because funds from it are taxable income. A Roth IRA will not affect your tax bracket after you retire because you’ve already paid the tax. Money in a Roth and money taken out is essentially income tax free.
That means a person who will be on a limited income and unable to pay higher taxes after retirement could benefit from a Roth. It is also possible to get a Roth annuity that functions in much the same way and a Roth 401K. People with higher income right now might benefit from one.
Which is Better for You: Roth or Regular IRA?
Your situation now should dictate the kind of IRA that you get. A person with a limited income who needs to save for retirement might benefit from a regular IRA. A person that can afford to pay the additional taxes now but not in the future would be better off with a Roth.