Traditional Vs Roth IRA - Which is Better For Low - Income Earners?

Deciding between a traditional and Roth IRA can be a hard, and individual, decision. To look at a particular situation we can try to answer the question-which is better for low income earners?

The thing that makes this question more difficult to answer is that this isn't just about what you're making now, but how it compares to what you expect to be living on in retirement.

The main difference between traditional and Roth retirement accounts is the issue of taxes. With a traditional account your contributions are taken from your income before taxes are taken out. This causes a number of things to happen, but mainly, it means that you'll be putting off paying taxes on this income until you make withdrawals in retirement.

With a Roth account your contributions are taken from your income after taxes are taken out, so you won't have to pay taxes on this money when you make withdrawals in retirement.

So how do you decide when you want to pay taxes on this money?

The percentage of taxes you are charged is determined based on the tax bracket you fall into. The more money you make this year, the higher tax bracket you'll fall into, and the higher percentage of your income you'll owe to taxes. If you're earning a low income right now, but expect that you'll be earning more over the years and have a higher income in retirement, than it would be a good idea to do a Roth IRA and pay your taxes now if you'd like to do that. If you're expect you'll always be in the same tax bracket then it's more subjective.

If you're still confused and wondering what you should do it's always a good idea to read more, or talk to a financial counselor! You can go over your individual finances with them and see what they think the best option for you is.

Remember that the important thing is that you're saving and investing for retirement, and while it's good to try and read about these options, the importance part is that you are in fact doing something, and that's what counts.