IRA Traditional vs Roth

How a Roth IRA Works


What is the best plan for an IRA – Traditional vs Roth?

Go Roth!: Your Guide to the Roth IRA and Other Roth Accounts by Kaye A Thomas, begins with a blunt explanation of how Traditional retirement accounts only defer taxes, “The IRS is a silent partner sharing in your success.”

When you are trying to figure out how a Roth IRA works and comparing a Traditional IRA with the rules of a Roth IRA, a question to ask is, “Do you want to share your profits with the IRS?”

Well, that certainly should get your attention.

Suppose you have contributed $20,000 over roughly 22 years to a Traditional IRA and it has grown to $86,000 at retirement. Maybe you feel good. After all, you turned $20,000 into $86,000.

Traditional IRAs Share with the IRS

Well guess what? The IRS is very excited too. The IRS will share in your profits. Every time you withdraw from your Traditional IRA and file your taxes, the IRS (your silent partner) receives a percentage because you pay taxes on each withdrawal!

Could this have been avoided? In most cases, “Yes.” Assuming you were eligible to contribute to a Roth IRA and had done so, the entire $86,000 could be withdrawn tax free.

Do you have a silent partner in your investments?

I tell my friends to get their Roth started. I tell my family. I tell my kids and almost every child I come in contact with. Want to change a child’s life? Consider The Kid’s ROTH IRA Handbook.

When I watched Michael Moore’s movie Sicko with a Sociologist, she laughed when I said, “You know, these people should have started Roth IRAs when they were young.” It wouldn’t have solved all the health issue examples but it sure would have helped!

Roth IRA Contribution Rules

It’s not enough to just invest in a Roth IRA. One needs to understand the Roth IRA contribution rules. After all what good would it be to purchase ice cream if you didn’t know it should be kept in the freezer?

Go Roth! by Kaye A Thomas, is a winner! It definitely has some technical sections but they are certainly easier to read than the IRS publication. (There are also mathematical sections to demonstrate and back up statements — for those of you might have a “show me the numbers” attitude or want proof of how a Roth IRA works.)

Go Roth! is a book to own, a book to highlight. You cannot just borrow it from the library because you will be using it again and again as your Roth IRA passes through the different possible phases (contributions, conversions, early withdrawals, distributions, or inheritance).

  • Get rid of your silent partner now. Stop sharing with the IRS.
  • Then get educated. Make sure you know how to handle your ice cream!

Traditional vs Roth IRA

Roth or Traditional IRA?

Quick links to good books: