How to Compare an IRA and a Roth IRA
Both a traditional IRA and a Roth IRA provide tax-deferred savings help for retirement. In most cases, both plans allow you to invest in any stocks, bonds or funds offered by your brokerage. Roth IRAs and standard IRAs also are available from many full-service and discount brokerages.
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Instructions
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Determine your current and projected future tax bracket. Roth IRAs allow the money to grow tax-free. This means you put in after-tax dollars, but when you take out money, you do not pay any taxes on the money you take out. Traditional IRA plans, on the other hand, allow you to invest with pre-tax dollars but you do pay taxes when you take money out. If you think your tax bracket will be higher when you are ready to retire then it is now, a Roth IRA may be your best bet. However if you think you are paying more in taxes now than you will by the time you are ready to retire, a standard IRA would likely be a better option.
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Determine your projected future income needs. Standard IRAs require you to begin taking distributions (or taking money out) when you reach the age of 70 1/2. Roth IRAs do not require you to take minimum distributions, so you can leave the money in your Roth and even allow your children to inherit it, if you don't need it to live off of in retirement.
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Look at your current income. Both Roth IRAs and IRAs have maximum income limits. Although these numbers change every year, in general, if you have a retirement plan at work and make $55,000 to $60,000, you are not able to contribute to a Roth or a traditional IRA. If you don't have a retirement plan through work, your income must be a little over $100,000 per year before you become ineligible. Historically, Roth IRA income limits were slightly higher than upper income limits for a standard IRA, so if you are close to the current lock-out number on a standard IRA, check the Roth to see if you qualify.
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