The main advantage of using a Roth IRA for retirement savings as opposed to a Traditional IRA is tax savings. When you contribute to a Roth IRA you do so with after-tax dollars, as in the money you put it has already had taxes paid on it. When you withdraw from your Roth IRA in retirement the money is tax free, as in it won’t count as income for that year.
You can withdraw your contributions at any time tax and penalty free. You can withdraw your earnings tax and penalty free as long as you have had your Roth IRA for at least 5 years and you are 59 1/2 years old.
The benefit of tax free income is that you do not have to worry about future income tax rates which gives you better flexibility to have enough income during retirement.
Another benefit is that you are never required to take distributions from your Roth IRA (like you are with a Traditional IRA) so if you do not need the money in retirement you can leave it in your Roth IRA and let it keep growing tax free. You can even pass it on to your heirs and they can also let the money continue to grow tax-free.
With a Traditional IRA the contributions you make are tax-deductible and when it comes time to take the money out in retirement the money is subject to federal income tax. However, if you plan on being in a lower tax bracket during retirement the Traditional IRA may be a better option. You also must take required minimum distributions (RMDs) when you reach 70 1/2 years of age.
There is no easy answer as to whether a Roth IRA or a Traditional IRA is better for you. For some people, with higher incomes, a Roth IRA may not even be an option, as opposed to a Traditional IRA being available to everyone regardless of income. It all depends on your own circumstances, income, and so on.
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