Traditional IRA vs Roth IRA (Pros & Cons)
Choosing between a Traditional IRA and a Roth IRA confuses many people who want to start investing. It’s very important to have a good understanding of both because your decision can have a huge effect on your long term goals. In this post I hope to clear up any confusion you might have so you can make the best choice for your specific life circumstances.
To begin let’s break down the difference between a Traditional IRA and a Roth IRA. It really comes down to the taxes. With a Traditional IRA, any contributions you do make will be tax deductible for that year. With a Roth IRA you don’t get the tax deduction for that year, but when you are ready to start taking money out in your retirement years it will be completly tax free.
The second part is your eligibility. For each type of account there are some income limitations that come into play which adjust on a yearly basis. If you believe that in your retirement years you will be in a higher tax rate, then a Traditional IRA could be the best choice for you. If you believe that in your retiremet years you will be in a lower tax rate, then a Roth IRA is most likely the better option for you.
Another factor to consider would be if you are going to need the income in your retirement years to live off. If you are not going to need this income to live off or if you plan to leave this as an inheritance to future generations then a Roth IRA would be beneficial for you.
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