During my radio show, I received a question from a 61 year listener. He asked "which is better IRA or Roth"? He was laid off last May, 2009 so his AGI (adjusted gross income) will be the lowest in years. He has enough savings to last him 2 years should he remain unemployed for that long. But he has extra money to contribute in either a Traditional or ROTH.
After doing the MATH, it is almost certain that he will end up in the lowest tax bracket. Thus, ROTH IRA is the better choice. While for some taxpayers, their eligibility to deduct Traditional IRA contributions is the main deciding factor in choosing between a Roth and Traditional IRA. However, being eligible to deduct your contribution does not mean that the Traditional IRA is your better choice. Consider whether the benefits of the Roth IRA - tax deffered growth, penalty-free distributions, and more importantly the Required Minimum distribution rule is completely eliminated during your lifetime - outweigh the benefits of a deduction.
Remember, always do the MATH. MATH is always compelling.
Finally, you may split your contribution between both types of IRAs and enjoy the benefits of both.
Whatever you decide, be sure to consult with your tax professional, as there are usually other factors that could determine which choices are most suitable to meet your financial needs.
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Roth IRA Conversion
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