In many cases, a Roth IRA may be a better option than a 401 (k) retirement plan, as it offers more investment options and greater tax benefits. It can be especially useful if you think you'll find yourself in a higher tax bracket later on. However, if your income is too high to contribute to a Roth, your employer offers you a counterpart, and you want to save more money each year, it's hard to beat a 401 (k) plan. A Roth IRA is better for taxpayers who expect to be in a higher tax bracket during retirement.
You can pay taxes today while your tax rate is lower, and then enjoy tax-free withdrawals while your tax rate is higher in retirement. With this type of transaction, you contribute money to a traditional IRA and then convert those funds into your Roth IRA. Elise also points out that if you want to take advantage of Roth IRA contributions but are not eligible for a Roth IRA, you can ask your employer if there is a Roth contribution option in the company's 401 (k) plan. This is because traditional IRA withdrawals are taxed at ordinary income tax rates at the time of withdrawal; qualified Roth withdrawals, as I mentioned, are tax-exempt.
An IRA is an account opened by an individual, and a Roth IRA allows you to save funds after taxes to withdraw them tax-free when you retire. So who is a traditional IRA good for? First, a traditional IRA is an excellent option for anyone who doesn't have access to a retirement plan through work, since they won't be subject to the income limits of their contribution deductions. The best IRAs allow you to invest in potentially high-yield assets, such as stocks and equity funds.