Pros and Cons of Roth IRA

Wood Profits Banner

Roth IRA is a very popular choice for people who want to save for retirement as it gives the benefit of growing your savings tax deferred and enjoy pension payments in retirement without paying any tax. This is in contrast with the traditional IRA in which a person has to pay taxes on withdrawals during retirement. This difference means a comfortable retirement period without any worry of paying taxes which really reduces the income of a person.

In retirement, a person's income is already very low and so, the benefit of Roth IRA of withdrawal money without paying any taxes is a huge one. Besides that, there is a chance that a person will be able to avoid any strictter tax regulations in future by getting Roth IRA. That is, if the tax rate increases in future, the person does not have to worry about it if he has Roth IRA because he will not be required to pay them.

Even though there are a lot of benefits from Roth IRA, there are some drawbacks which make the traditional IRA better than that. First, the disadvantage is that the benefit of getting withdrawals tax during during retirement is a long term benefit and will only be realized in retirement. On the other hand, the traditional IRA gives a person instant tax saving and the person can save the amount of the contribution he paid multiplied by the tax rate. Beside, a person has no guarantee that he will live up to retirement and will be able to take advantage of Roth IRA's tax free withdrawals. Beside, there is always the chance that the circumstances change; for example the tax rates can decrease or the person can shift to a no tax state. In that case, he would have preferred more if he had taken the traditional IRA, and the Roth IRA and the taxes he paid in all those previous years will be of no use. This is the reason why sometimes, planning for short term is better than going long term.

Another disadvantage of Roth IRA is that, a person's income is more in his working age than during his retirement. His, the tax payments in his working age are also very high than those in his retirement. So, most people find it beneficial to save the money in high tax payments during their young age than the lower tax payments in old age.

All the advantages and disadvantages of Roth IRA and traditional IRA should be analyzed thoroughly and a proper comparison should be considering all the factors like economy of the country and the likelihood of rules and regulations of tax payments to change. After comparing properly, then only a person can reach a good and a wise decision regarding this. Actually it is not definite which one of the IRAs is better as it all depends on the circumstances, needs and the priorities of the person saving for retirement pensions.

Source by Casey Trillbar