Which IRA is better? Traditional IRA or Roth IRA?

Question

If your age is 25 which is better, Traditional IRA or Roth IRA? If your age is 50 which is better, Traditional IRA or Roth IRA? Retirement age at 65.

Answer 1

Depending upon your income and tolerance for current taxes, as a general rule the ROTH is.

ROTH - Income you get is tax free, but you get no break on taxes when you invest in them.

Traditional IRA - Income that you get from them at retirement is taxed (presumably at a lower rate than when you were working); but you get a credit on pre-tax dollars in the current year.

Answer 2

There is not a one size fits all answer to that question.  There are a lot of variables that go into determining which is better for who.  

In general, the Roth is better for a younger person.  A younger person generally makes less money than an older person, so the benefit of a tax deduction for a traditional IRA contribution is outweighed by the benefit of after tax dollars growing tax free.

An older person who is in a higher income bracket may find a greater benefit in using a traditional IRA over a Roth.  A person is likely to make more money at 50 than in retirement, so they may have a greater tax benefit by taking deductions for contributions now rather than having the money grow tax free for only 15 years.

Remember, this is only a generalization and should not be applied to anybody without a proper understanding of their current and projected future financial situations.

Answer 3

There are too many variables missing in your question.  Neither is better over the other.  Both are great vehicles to a goal.  But you need the right vehicle for the job.

What's the AGI? Are they married? Have they maxed out other retirement plans? Are they self-employed?

Answer 4

Young people should go for the Roth and older ones stay with Traditional. All for tax reasons.