Personal Finance Resources

The Roth IRA is relatively new to the investment world, having only been on option since January 1, 1998. It was created as a result to the Taxpayers Relief Act in 1997 to help Americans better save for their retirement. For some people (I generally think that in the long run, the Traditional IRA is the better bet for most people; see the Traditional IRA vs Roth IRA breakdown), the Roth IRA is a better choice for their investment needs than the older Traditional IRA for several reasons.

Read the rest of this entry »

Bookmark, Share or Email this article.

Deciding whether to invest in a Traditional IRA or a Roth IRA can be a difficult decision, especially if you are unaware of the differences.  A Traditional IRA is an approach typically taken with an employer sponsored plan where before-tax dollars are contributed, thus allowing the employee/investor to invest more money over the life of the IRA.  However, a Traditional IRA is subject to income tax at the time of withdrawal (typically retirement).

On the other hand, a Roth IRA is funded with after tax dollars, and none of the principal or growth of the fund is subject to taxation at withdrawal.  All tax has been paid before money is ever invested, and the government allows for tax free growth.  Sounds like the better option, huh?  Lets look at example and find out.

This graph shows the result of 30 years of investing between a Traditional IRA and Roth IRA, assuming the investor gets an 8% return, contributes $200/month to the Traditional IRA, and only $160/month with a Roth IRA (due to an assumed 20% taxation before investing).

As you can see, the Traditional IRA accumulates approximately $60,000 more than the Roth IRA.  But wait Jeffry, the Roth IRA doesn’t get taxed during retirement and the Traditional IRA does, won’t I end up with more if I go with the Roth IRA?  Maybe, maybe not.

Read the rest of this entry »

Bookmark, Share or Email this article.