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dub2000gt | Which is a better investment for retirement for a 23yr old; a roth IRA or a traditional IRA? |
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muncie birder
|
This is not an easy question to answer. It is something of a trade off. You save money up front with the traditional because of the tax benefit. You save money later with the tax benefit of the Ross. One important point to consider is the amount of money you expect to have in your accounts when you are required by law to begin withdrawing for a traditional.. Since you are 23 you could possibly be contributing $4000 and more for as long as 45 years. Assuming 10% annual return, you could wind up with about $2,876,000 in the account earning $287,000 a year. Don't know how much that will be worth in 45 years, maybe nothing. But let's assume that it is. You will have to withdraw $108,528 that year. Since you are earning more than you are withdrawing, each year your required withdrawal rate will increase. The following year you will have to withdraw $119,316. On a traditional you will have to pay taxes on every red cent. You will probably fall into the alternate minimum tax also, if it is still around.
With the Roth IRA you are not required to withdraw any amount by any age unlike with the tradional and withdrawals are never taxed. |
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www.TheUseFulInfo.com
 |
There is no easy answer! Correct answer will depend on at least following factors.
# Age (i.e. time between now & retirement)
# Returns i.e. earnings on your contributions.
# Your income & expenses.
# Tax bracket now & after retirement.
Typically ROTH IRA will be better choice for 23 yr old, Why?
Assuming you get 10% avg return on your roth ira investment, it is better to go for ROTH IRA. Longer the money in ROTH IRA, more time for earnings to grow. So eventually your earnings (gains/interest) will be far more than your actual contribution. And real gem of roth is, earnings are TAX FREE after 59 1/2 yrs!! With 23 yrs age now, this situation can easily apply you.
Checkout following links for more details. Hopefully this helps.
Source(s): |
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ropman1
 |
Roth IRA |
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grk_tigris
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It depends on your income. If you made less than 95K last year and can't make deductible IRA contributions go for the Roth. I would say that if you are working also take advantage of your company's 401k plan ( most companies will match up to 6% of your income) that's more money invested. |
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Quixotic
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What other answers aren't mentioning is that tax policies when you withdraw the money is an important factor. But it is also unknowable.
If you think taxes will be significantly higher in 40 years, than a Roth is a better deal. If you think your tax rate will be lower in retirement, than an IRA is. |
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mcilvane
 |
Roth IRA |
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gatorgrad99_99
 |
In my personal opinion, the Roth is a better deal hands down unless you need the money now. Even then, the Roth can be very attractive as the money you put into it can be withdrawn at anytime. |
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frankrcarman
 |
IMOP a ROTH is clearly the best vehicle IF you plan to run a self-managed account and IF you plan any significant degree of trading. I have had several PM stocks dbl to trip in the last year. A ROTH allows me to leave tax considerations out of the equasion and focus on building my share count by trading 1/3 of my position. |
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Geeeyaaa
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Roth IRA = Tax free growth + tax free withdrawal at retirement.
Traditional IRA = TAX DEDUCTIBLE + taxed at retirement.
If you're age 23 you can probably earn more money using interest + compounding method of earning money through Roth IRA.
If you ever need the money than you can pull out your Roth IRA contributions after 5 years.
If you're investing in a Traditional IRA then you can claimyour deductions every year but it's not saved in your retirement tax free like Roth. |
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jebediabartlett
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I'd say it depends on your current tax situation...if you're 23, single, no dependants...you're probably getting beaten mercilessly at tax-time... so you go with the traditional IRA ( lowers your income by the amount of your contribution...thus lowers your tax)
But if you're married, couple of dependants, a home mortgage...maybe your tax burden isn't unbearable...so you go with the Roth ! ( Tax- free income when you're really going to appreciate it...retirement )
You've got years and years ( and years ) to go...you could alternate year over year, too. ..and end up with two different kinds of income at retirement. That could be very nice...
Just some avenues to explore...
Good luck. |
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