When will it be better to use a Traditional IRA versus the new Roth IRAs?
A. The choice of which type of IRA is better boils down to expectations regarding current and future tax rates. If your tax rate when you withdraw funds from your IRA is lower than your current tax rate, the Traditional IRA will have a higher return on investment. Of course the opposite is true if your tax rate when you withdraw funds from your IRA is higher than your current tax rate. This holds true regardless of what the expected return on your investment is or the expected time to retirement. Since predicting future tax rates or income is difficult the best rule of thumb is to use current facts. If you are currently in the lowest tax bracket (15%) then the chances of being in a lower tax rate at retirement are low meaning a Roth IRA will maximize your return. Furthermore, these facts hold true when considering whether to roll over Traditional IRAs into Roth IRAs. If you are currently in a high tax bracket do not roll over your IRA unless you will be in an even higher tax bracket at
