What is the main advantage of a Roth IRA compared to a Traditional IRA?

The main advantage of a Roth IRA compared to a Traditional IRA is tax-free withdrawals in retirement. With a Roth IRA, contributions are made using after-tax dollars, which means that you pay taxes on the money before contributing. The significant benefit of this structure is that withdrawals during retirement, including both contributions and earnings, are completely tax-free as long as certain conditions are met, such as reaching age 59½ and having the account open for at least five years.

This feature contrasts with a Traditional IRA, where contributions may be tax-deductible, but withdrawals are taxed as ordinary income during retirement. Therefore, the ability to access funds tax-free in retirement makes a Roth IRA particularly advantageous for individuals who expect their tax rate to be higher during retirement or who simply prefer to avoid taxes on their investment growth. Tax-free growth and withdrawals can result in significant savings over time, enhancing overall retirement funds.