October 7, 2006 4:45 PM
Roth IRA Or Traditional IRA?
Yes, there is no one-size-fit-all in the decision between Roth IRA and Traditional IRA. Here are some principles you should follow when you judge both opportunities yourself.
From Fidelity:
If you cannot deduct your contributions to a Traditional IRA and you qualify, a Roth IRA might be the better choice for you to consider since withdrawals of earnings are generally tax-free. If you aren't eligible for a Roth IRA, anyone under age 70½ who has compensation can take advantage of the benefits of a Traditional IRA, including tax-deferred growth and the potential for tax-deductible contributions.
If you can deduct your contributions to a Traditional IRA, the decision to open a Roth or Traditional IRA generally depends on how you think your tax situation in retirement will compare to what it is today, and how likely you are to withdraw money before age 59½.
Money in a Traditional IRA grows tax-deferred and is taxed when withdrawn. If you withdraw the money before age 59½, you generally must pay a penalty, subject to certain exceptions. If you think your tax rate in retirement will be lower than it is now and you do not plan to withdraw the money before age 59½, a Traditional IRA may be the better choice for you.
Money in a Roth IRA is not federally taxed when it is withdrawn, and you can withdraw your contributions at any time without paying a penalty. If you think that when you retire your tax rate will be higher and/or you might need the money before age 59½, the Roth IRA might be the better choice for you to consider. Early withdrawal of earnings may be subject to penalties or taxes.
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