Traditional vs. Roth IRA?

Question

What are the factors to consider when choosing between traditional versus Roth IRAs?

Answer 1

The reason a Roth is recommended when young is because you are likely in the lowest tax bracket you will be in, and that money can grow tax free for a long time.

As your pay increases resulting in higher percentage of taxes, tax deducible contributions to an IRA or tax-deferred savings to 401k or other employee retirement plan benefit you more by reducing taxes more at that point, possibly keeping you out of a higher tax bracket.

And eventually having a mix of both will hopefully result in a lower retirement tax bracket than if it was all tax-deferred, while giving you flexible lump sums for essentials or pleasure from the Roth without any tax implications.

Answer 2

For traditional IRA, the contribution is usually tax-deferred, but the growth is taxable.

For Roth, the contribution is taxable, but growth is tax-free.

That said,

If you are younger, choose Roth.

If you believe tax rates will be higher when you retire, choose Roth.

If you believe you will have more assets/income when retired, choose Roth./