What is one key advantage of a Roth IRA over a Traditional IRA?

A key advantage of a Roth IRA over a Traditional IRA is that withdrawals are tax-free in retirement. This means that any money you take out of a Roth IRA after reaching retirement age is not subject to income tax, provided that certain conditions are met, such as having the account for at least five years and being at least 59½ years old. This feature can significantly benefit individuals who expect to be in a higher tax bracket during retirement or who want to manage their taxable income more effectively in the future.

In contrast, with a Traditional IRA, contributions are often tax-deductible, but withdrawals in retirement are taxed as ordinary income, which can lead to a higher overall tax burden during retirement. Additionally, Traditional IRAs have required minimum distributions (RMDs) that mandate withdrawals beginning at age 73, which can complicate tax planning. While Roth IRAs do have contribution limits, they can be particularly advantageous for retirement planning due to the tax-free nature of withdrawals, allowing for more effective growth and access to funds during retirement.