The traditional IRA vs. Roth IRA debate is one of the most hotly contested in all of personal finance. And there are solid arguments for each side. But I know how important it is always to save for retirement, and here's why I prefer to save in the Roth IRA.
1. I'm optimistic about the future
One of the core arguments for a traditional IRA is that it gives you a tax break right now -- when you contribute -- so you get to pocket that cash immediately. And don't get me wrong: I think that argument makes a lot of sense. But I'm an optimist, and so I go Roth.
The core issue is tax rates: Will you pay more in taxes now or later? Because you pay taxes either way -- either up front by contributing after-tax dollars to the Roth, or later if you contribute pre-tax dollars to the traditional. I like to think that I'll have a lot more money in retirement than I do now -- and will have a higher income because of all those investments, too. So I'd rather eat my vegetables now, get the taxes out of the way, and reap the benefits later when I have a lot less optionality.
There's another component to this optimism: The average American man sees his earnings peak around age 49. I'm 28, so I think there's plenty more upside. And at some point, it's possible that I'll make more than the maximum income limits for contributing to a Roth IRA ($199,000 for married filers in 2018, likely higher in future years). If so, I'll be forced to stop contributing to a Roth IRA -- so I'm going to do it while I can!
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2. It gives me flexibility in retirement
When you reach 70 1/2, the IRS begins requiring you to take required minimum distributions from a traditional IRA. The government has a lot of deferred tax revenue tied up in the IRA, so it wants to get that cash from your account. So you have to withdraw a certain amount each year (you can calculate your IRA required-withdrawal amount here) and pay taxes on it, regardless of whether you need it or not.
I find that annoying. I would much rather maintain total control over my finances and withdraw what I want from wherever I want to, when I want. That's particularly true when taxes are involved. The Roth IRA doesn't have a requirement minimum distribution requirement.
3. I can use it when I need it most
Before I say anything else, let me emphasize: Dipping into retirement funds should only be done when you don't have other options. That said, if you're financially up against a wall, you might consider tapping your Roth IRA.