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Roth IRA or Traditional IRA: What Do You Do?

I’m curious to hear your arguments for contributing to either a Roth IRA, traditional IRA, or both. What do you do? Unless I’m missing something, the scales tilt heavily on the side of Roth IRAs for us twentysomethings.

For those who need a primer, an IRA is a retirement account with significant tax benefits that you can fund each year in addition to the contributions you make to an employer-sponsored plan like a 401(k). There are two kinds of IRAs: Roth IRAs and traditional IRAs. Here are their primary differences:

Traditional IRA

  • Contributions are tax-deductible (up to IRA contribution limits)
  • Withdrawals can begin at 59 ½; are mandatory by 70 ½
  • Withdrawals are taxed as income
  • No income restrictions
  • 10% penalty on most withdrawals before 59 ½

Roth IRA

  • Contributions are not tax-deductible
  • Withdrawals can begin at 59 ½; no mandatory withdrawal age
  • Withdrawals are 100% tax-free
  • Cannot contribute if you are single and earn more than $117,000 or married and earn more than $194,000
  • Principal can be withdrawn almost any time with no 10% penalty

The big perks for investing in a Roth IRA—especially in our twenties—is that we are (hopefully) in a lower tax bracket now than we will be at retirement, meaning tax-free income will be more valuable later than a tax deduction is now.

Furthermore, and perhaps more importantly, is the fact that the principal we invest in a Roth IRA can double as an emergency fund. (You can, however, also take penalty-free withdrawals from a traditional IRA for certain higher education expenses and—up to $10,000—for the purchase of your first home).

To which kind(s) of IRAs do you contribute? Why?

Published or updated on November 3, 2008

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About David Weliver

David Weliver is the founding editor of Money Under 30. He's a cited authority on personal finance and the unique money issues we face during our first two decades as adults. He lives in Maine with his wife and two children.


We invite readers to respond with questions or comments. Comments may be held for moderation and will be published according to our comment policy. Comments are the opinions of their authors; they do not represent the views or opinions of Money Under 30.

  1. April says:

    I’m contributing 9% to my company’s 401k, with 6% matching of $.50 to each $1. I rolled over my old employee’s 401k into an IRA, and then from there I’ll take $1000 per year from my IRA into my ROTH IRA. I’m just not sure how much taxes i can afford if I transfer more than $1000/year. I’m in a high income tax bracket where they take 40% outta my paycheck!!! I own a condo and a house, but things are tight. I’m hoping I’m covering my ass-ets! 28y/o female. no kids. single. $80k/yr before taxes.

  2. Ryan says:

    Roth IRA. For one, I don’t make enough to require a tax break right now. For two, as our nations deficit expands, the need to collect more taxes from citizens is going to have to make its way to the top of the solution pile someday. When that day comes, I’ll be drawing Roth IRA contributions tax free.

  3. I know it all says:

    The biggest perk for a Roth IRA is the growth potential! This thing has unlimited growth, and if you are lucky to have that growth, you won’t have to pay any taxes when you withdraw.

    It is also good for emergency fund as principal (contributions) that you put it is never taxed at any time when you take it out.

  4. Roth IRA, because Suze Orman says so. lol

  5. DoneToZen says:

    Roth IRA because it’s important to diversify between tax-free and taxable retirement accounts. I already max out my (traditional) 401K account, so I already have a (bigger) source of taxable income in retirement. If my company offered Roth 401K, then I would contribute to a traditional IRA.

  6. Becca says:

    I’m going with the Roth. I’m 24, so I’ve got a long time to contribute, and thus my earnings will be a larger chunk of my retirement savings than will be my contributions. Getting taxed on just the contributions instead of the whole pot just makes sense.

  7. T says:

    Roth. For tax reasons given here; not at all b/c plan to use as emergency fund.

    (Married, 30yo, one kid on the way, 75k/y combined income before taxes)

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