In Roth IRA you pay income taxes on the income before contributing it. However, a Roth IRA provides you with tax-free income when you retire. Contributions to a traditional IRA, on the other hand, are tax-deductible, because in a traditional IRA you pay taxes on the money when you take it out upon retirement.
In Roth IRA the money grows tax-free, which implies you don’t pay capital gains taxes on the money it generates. Similarly, you don’t pay capital gains taxes on a traditional IRA, but in IRA you do need to pay income taxes on when you take it out.
While choosing between a traditional IRA and a Roth IRA, it’s important to understand whether you will pay more in taxes now when you are working or when you take the money at the end of retirement. If you think your taxes are going to be higher while you are working, it’s best to choose a traditional IRA, but if your taxes will be higher when you retire, you should get a Roth IRA.
Benefits of Roth IRA:
Tax savings: In Roth IRA you pay taxes on the money that you contribute now, rather than years later, when the tax rate may be higher. In case your tax rate is lower now, it is better to pay taxes now and avail of tax-free retirement withdrawals.
Easy withdrawals: Roth IRA allows you to withdraw your contributed money at any time, without any penalty or taxes. However, you may be penalized or taxed if you withdraw investment earnings.
Double-dipping: You can make contributions to both a Roth IRA and a 401(k).
Flexible timing: You have the option to choose when and how much to contribute to a Roth IRA.
Tax-free distributions: Once you cross 59½ years and have had the Roth IRA account for at least five years, you are eligible for distributions, including earnings from a Roth IRA without paying federal taxes.
There is no age limit to open: You can start a Roth IRA at any age, as long as you have income. However you cannot make contributions greater than your earned income
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