The Roth IRA is a new type of retirement account with significant advantages for most investors. Unlike a traditional IRA, the money you contribute to a Roth IRA is taxable at the time you invest it.
However, the income enjoyed by your Roth IRA account is not taxed, nor is the money in the account when you withdraw and spend it after retirement. This is a huge tax break, because your $2,000 annual contribution is likely to have grown into tens of thousands of dollars by the time you retire — all of which will be yours to use, tax-free. Generally speaking, the only people for whom a traditional IRA is probably a better deal than the Roth IRA are those who are less than ten years away from retirement. For them, the immediate deductibility of this year’s contribution may be worth more than the back-end deductibility of the Roth IRA.
Your broker, banker, or mutual fund company can help you with the calculations if you’re unsure which type of account is better for you.
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