The most popular feature (and the greatest advantage) of the Roth IRA is the fact that once an individual has reached age 59 and 1/2 they can withdraw their retirement monies tax free. The alternative arrangement in the Traditional IRA allows one to take a tax deduction upon putting their money into the IRA but they have to pay taxes on it when they withdraw it. What this boils down to is a simple question of exchange. Do you want to take a gauranteed tax break up front or hope for a much larger tax break in the future. The Roth IRA owes its tremendous popularity to this feature; the fact that money is allowed to grow and be withdrawn tax free.
With the way that the current tax code is constructed, the traditional IRA offers a guaranteed tax break on the initial contribution. However, later, when it is time to take distributions (withdraw your money) you will pay taxes on the sum gain realized in your account. The problem arises if you remain in a high tax bracket into your retirement because distributions from a traditional IRA at taxed at the level of your income, meaning that you will pay 28% if you are in the 28% tax bracket rather than a long term capital gains tax which is lower.
The major feature of both the Roth and Traditional IRA is that transactions within your account are not taxed. Unlike a regular brokerage account, an IRA shelters you from taxable events until it is time to withdraw the money (traditional IRA) or forever (Roth IRA). Thus, if you have money to invest for the long term, an IRA is often your best choice because of the tax advantages.
One key distinction between the two, the Roth and the Traditional, is that with the Roth there is no point where you will be required to take your money out. With the case of the traditional IRA once you are older than 70 1/2 years you will be forced to begin to take distributions or suffer a monetary penalty. In the case of the Roth IRA, however you are not required by law to take deductions at any age. In fact, you can continue to fund your Roth IRA (without withdrawing any money) until you are 100 if you so desire.
A key question for the future however is whether the IRA will become a thing of the past. Some have asserted that Congress will have a tough time keeping their hands off of this retirement money for so long. There is not a complicated explanation for this. Many believe that government wants their cut of this money and so they will take it. Because of this, many wonder if the main argument in favor of the Roth IRA, the tax advantages, will become moot. So the Traditional IRA, which offers an upfront tax advantage may be the safer way to play it. At this point, it seems uncertain that the current system will be maintained indefinitely. Depending upon your time horizon before retirement, you will have to judge if you believe the government can keep its hands off your money for that long before making your decision.
In summation, those are the essential advantages and disadvantages of the Roth IRA over the traditional IRA. There are many other factors to consider when planning for your retirement including IRA limits and Roth IRA limits so make certain to do your due diligence before deciding on a course of action.
