- Non-Roth accounts impose an age requirement for withdrawals, otherwise known as Required Minimum Distributions (RMDs). RMDs commence at age 70 ½ and are assessed a 50 percent penalty for any missed RMD by the IRS.
- Income taxes are paid on the back end for contributions and earned income withdrawals on non-Roth accounts, and they are paid conversely on the back end for Roth accounts (though earnings are tax-free if the 5-year holding period is met). Roth beneficiaries are in a more advantageous position as income taxes are paid upfront, simplifying a deceased owner's estate taxes and potentially providing more money to the beneficiary if earnings are withdrawn tax-free.
- Tax-free earnings withdrawals equates to increased spendable income for Roth IRAs versus non-Roth accounts. Consult with a tax advisor and run the numbers with current and future tax rates. Many people still come out on top paying higher taxes upfront due to the compounding effect on earnings.
- Free and fee-based online retirement calculators help you gauge whether tax-free or non-deductible IRA distributions are more cost effective. Annuity-based calculators are the most accurate, but they should only be used as a guide. They don't render 100 percent accuracy.
- Roth accounts are better situated for estate planning. Spousal beneficiaries can treat the Roth as his own and aren't forced to take RMDs. Nonspouse beneficiaries can stretch out RMDs over his lifetime, and be responsible for potentially only estate tax and not income tax.
