Why I fund a Roth IRA, not a traditional IRA

The other day, a friend asked me if I have any plans for investing any of the money we earn here. I told him about a few of them, one being a Roth IRA account I opened fairly recently. He asked me why I chose a Roth IRA instead of a traditional IRA, which isn’t normally the most fascinating conversation in the world, but it reminded me that I should talk about this more often anyway.

So, for those who might be interested, here’s why I made this decision:

  1. They told me to go the Roth route. Before I go any further, I should highlight how important this is. Instead of actually researching too much, I just went for it. Yes, I did some of the legwork. I’m not the type to not know what’s going on if I can help it. But the initial push to fund a Roth IRA came from just a few people I respected saying that this would be the best option for me. (From there, it’s more just a matter of why they suggested the Roth…)
  2. I don’t want to pay taxes later. This is the biggest difference between the Roth and the traditional setup. With the Roth, I use post-tax money to fund it, but then don’t have to pay taxes on the earnings in the future. With a traditional IRA, I’d get to fund it with money I don’t pay taxes on, but then I’d have to pay taxes when I take the earnings out later. I don’t pay any income tax because my salary for the past couple years has been from abroad. This I’m getting around taxes altogether with the Roth IRA.
  3. My employer isn’t matching my contributions. That’s a downside to working abroad, I guess. The way I understand it, though, the employer match usually only works with traditional IRAs. So the upside for me is that without the match, I don’t even have to weigh that in the decision.

I don’t plan on adding to it forever. In fact, I’m pretty sure I’ll stop within the next few years (and I’ll probably talk about why later on). For now, though, I think it’s good to do and good to talk about. Maybe there will be a tipping point soon.

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