Traditional IRA vs Roth IRA: Pros and Cons
A traditional IRA vs Roth IRA can be a tough choice, because both of these Individual Retirement Account types have both pros and cons. Any type of IRA savings account is better than not saving up for retirement, because you will end up in your golden years without the financial stability and resources that you will need at this time.
Pros: The traditional IRA allows you to contribute if you have any earned income or if you file Married Filing Jointly on your tax return and your spouse has earned income, even if you did not. This is only until you reach the age of seventy and one half though, and then your contributions must stop. One benefit is that a traditional IRA rollover is not taxed, but the income you receive during your retirement is. That is because your account contributions are taken out before taxes are calculated on your earnings. This is an important distinction in the traditional IRA vs Roth IRA debate.
One of the pros for contributions with Roth IRA eligibility is that you can contribute to your account past the age of seventy and one half years, as long as your annual income falls within the published guidelines. This can be an important factor in the traditional IRA vs Roth IRA consideration, because of the ability to contribute after this age limit has been reached. With a Roth IRA you pay no taxes when you withdraw the money as long as it is done after the required age, because these funds are taxed as they are deducted from your earnings and added to your IRA account. The SEP IRA vs SIMPLE IRA is another common one where individual retirement accounts are concerned.
Cons: One of the major cons of contributing into a Roth IRA are obvious contribution limits. Your annual Roth IRA contributions are also not tax deductible which is an unfortunate con in itself. On the other hand, if you look at traditional IRA account, mandatory withdrawals must begin once you reach the age of 70 ½, this is not the case with a Roth IRA account.
In the traditional IRA vs Roth IRA discussion it is important that you understand all of the benefits and drawbacks that each plan has. While each of these plan types can be an excellent choice one will always be better than the other, and this will depend on your specific circumstances and retirement needs and goals.