IRA Vs Traditional Iras

Saving up for the retirement is one of the most important decision we all should make in our 20s. To do so, we can open an individual retirement account (IRA). IRA is mostly like a saving account, which helps you build your nest egg. The difference of IRA with a saving account is that you can use some tax-advantages while you are saving up for your retirement. “Individual retirement accounts, or IRAs, give people a way to build tax-deferred savings for retirement. An IRA is an account, not an investment” (Bankrate, 2009). There are four types of IRA: Traditional IRA, Roth IRA, SEP IRAs, and SIMPLE IRAs. According to “Roth IRA vs. Traditional IRA: What's the Best Choice for You?” an article by Matthew Frankel the Traditional and Roth IRA are

That is why they call the Roth IRA “tax-free”. So, the difference between the Roth IRA and the Traditional IRA is that “Traditional IRAs can delay the taxes until retirement, but with Roth IRAs, you pay tax now rather than later” (CNN, 2017). Logically, Roth IRA should be more beneficial because you pay the tax now and you don’t have to be worry about it when it’s time to use your nest egg. Also, the tax rate will increase over the time, so it would be better to pay it when it’s lower. Another big difference between these two IRAs is the time you are allowed to withdrawal your money. With the Traditional IRA you must start withdrawing from your account by the time you are 70 versus the Roth IRA that allows you to leave your money in your account as long as you want or you can take it out any time you want (CNN, 2017). The similarities is that you have to pay the tax on your IRAs anyway, and it doesn’t matter which type of account you have, none of them is actually “tax-free”, and you have to pay the tax at some point.

Considering the points I’ve mentioned above, Roth IRA seems to be a better choice, but there are certain requirements that have to be met before a person can contribute to Roth IRA. According to CNN, “you must have a taxable income and your modified adjusted gross income is