Roth IRA is better than regular IRA?

[Guest enigmaaaaa]

It seems that everything I read tells me that Roth IRA is a better option than the regular IRA, which I don't understand. The first thing came into my mind was this:

most people will be in a lower tax bracket by the time of retirement than they are now. So, wouldn't it be to my advantage to defer tax payment, as with a regular tax-deductable IRA, until when I retire than be taxed at higher tax bracket now, as with Roth contirbution?

am i wrong?

[Guest taylorjeff]

You raise a good point. If tax rates are lower in retirement, the ROTH will be less attractive. The problem is you don't know that they will be lower. If you retire with a significant 401K plan, traditional IRA, private pension, or other taxable income, you could end up in a higher bracket than you think. In addition, a portion of your social security may be taxable, based on your overall income level.

Because its distributions are nontaxable, the ROTH allows you to minimize other taxable income in order to stay in a lower tax bracket.

You also don't have the minimum distribution rules with the ROTH.

[papogi]

The regular IRA gives you a small tax break up front (if you are able to deduct the contribution), but forces you to pay tax on the entire appreciated amount upon distribution. A Roth IRA allows you to pay income tax on your relatively small contribution, then pay no tax at all on the entire appreciated amount. Regardless of your retirement tax bracket relative to your current tax bracket, that is a potentially big advantage for the Roth. There are some on-line calculators at places like Vanguard and T Rowe Price which let you run the numbers and compare traditional versus Roth, based on your assumptions.

[Appleby]

I agree with papogi. Projections show that even for some individuals who will be in a lower tax bracket at retirement, the Roth IRA yields a higher net.

Calculators are also available at www.rothira.com