When is a Roth IRA better than a regular IRA?
Traditional IRAs are tax deductible now but the gains are taxable; Roth IRAs are not tax deductible but grow tax free. If you are young and plan to invest your money for retirement, the money can easily grow to incredible amounts and the capital gains are tax free. In addition, Roth IRAs can be used for house down payments and education under certain circumstances. Example: You have $1000 and are in the 25% tax bracket. Traditional: Invest $1000 (after tax) but get $250 back on taxes, meaning you are really able to invest $1250. Assume 8% return and you are 29 with 36 years to retirement. That money will double every 9 years, giving you a total of $20,000 at retirement. However, the governments 25% of the gains, leaving you with $15,312. Roth: Invest $1000 (after tax) with no tax deduction. Assume same return and years to retirement. You will have $16,000 at retirement. It is only a small difference but multiple that $700 or more over 36 years of reinvested returns and you will have a
