I am just starting out in my career (26 years old). My company does not offer any retirement or 401k plans. I just did my taxes and realized I can get an extra $925 back on my refund if I contribute $3500 to a traditional IRA. I have decided I can afford to and should make this size contribution for last year to some sort of IRA. Should I contribute to the ROTH IRA and get the tax benefit when I retire or the traditional IRA and get the benefit now?
I know I won’t have to pay taxes twice. I guess my question is which way will have to pay less taxes? And which is just a better choice for whatever reason.
Jon
{ 2 comments… read them below or add one }
Gerald
Go for a ROTH IRA. You pay taxes now. When you retire you won’t have too pay taxes again on the money. If they did it would be double taxation, and that is against the fedral law. Also if taxes are hire you still don’t pay later
Victoria
If you think your tax rate is higher now compared to what it will be in retirement, then go for traditional. If you are in a relative low tax bracket now, go with ROTH. I’d say that if you are in the 25% or higher tax bracket, then I’d go with traditional. 15% or less, go with ROTH.
There are advantages to the ROTH though. You can take out your contributions at any time, without penalty. You don’t have to figure out taxes in retirement on your balance; what your statement says is what you’ll have in retirement. You can hand down ROTH’s to your children, if you are well off in retirement. And it gives tax diversity.
You must log in to post a comment.