The crucial difference lies in when you pay taxes on your contributions.
With a traditional IRA, you pay taxes when you withdraw the money at retirement. With a Roth IRA, you contribute to the plan with after-tax dollars and then withdraw the money tax-free at retirement.
With both of these plans, your money will grow tax free while it’s in the account. Because Uncle Sam will get his money one way or another, you need to ask yourself, “Do I want to pay taxes now or later?”
I don’t know your current situation but I want to point out that although they seem high, taxes are at a historic low. Today, the highest marginal tax bracket is 39.6%. The government started income taxes in 1913, and the first federal income tax rate was only 1%. Thirty years later, in 1943, the highest marginal tax bracket was 94%!
Here’s the truth: taxes could very well double. History shows that the rates have been much higher. Therefore, if you’re planning for retirement, I would strongly consider a Roth IRA. By doing this, you’re protecting yourself against any future tax increases by paying taxes now.
With traditional IRAs, you must start withdrawing the money by age 70.5, even if you don’t need it. Roth IRAs are more flexible, as you can leave the money in your account for as long as you need and let it grow as you get older. Years from now, you can keep watching your money grow, knowing that it’s safe from Uncle Sam!
Here’s a pretty cool YouTube video going into more detail: https://www.youtube.com/watch?v=iTEzh6gla7I