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Old 01-21-2007, 04:05 PM
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Roth Ira

TaxGuru,

What is benefit of ROTH IRA? Which is a better choice a ROTH or Regular IRA??



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Old 01-21-2007, 08:14 PM
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Dear Kapriati,

A very good question!

The similarities are that both have income limitation rules applied.

The main difference between a ROTH IRA and a Regular IRA is that if you qualify for a Regular IRA contribution, this results in a tax deduction for the the taxpayer. Hence, the taxpayer enjoys benefits immediately in terms of a favorable reduction is his or hers tax liability (equal to the IRA contribution x effective tax rate).

However, when taxpayer turns 59 1/2 and he begins to make a qualified withdrawal, this amount becomes taxable at the effective tax rate of the taxpayer at that time!!!

The ROTH IRA does not allow any current tax deduction as in the case of the IRA, but instead if the taxpayer qualifies to make this contribution, he can withdraw from this amount tax free after a minimum of 7 years. Hence, no tax liability on the entire amount of distribution including the earnings or profit from the ROTH IRA investment.



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