Roth vs. Traditional IRA
A nice comparison posted on Yahoo Finance, Oct. 17, 2007.
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A Roth seems like the obvious choice over a traditional IRA since it has tax-free withdrawals. Not always, says Walter Updegrave.
Question: If you contribute to a traditional IRA, after many years most of your account value will be in the form of investment earnings, which are taxable when you withdraw them. With a Roth, on the other hand, your balance will be tax-free. So it seems to me that the advantage of tax-free withdrawals from the Roth in the future greatly outweighs any tax-deduction benefit you get from a traditional IRA. Doesn’t that make the Roth a better deal?
Answer: A lot of people aren’t quite sure how to assess the value of contributing to a traditional IRA vs. doing a Roth. That’s not surprising, given the number of factors that can affect which is the better choice for a given person in a given circumstance.
Generally, I think having at least some money in a Roth IRA (or Roth 401(k), if that option is available to you) is good idea for several reasons. But before I get to them, I’d like to step back and explain how both traditional and Roth IRAs work in a way that, I hope, will give you and others a better understanding of them and help you decide which type to fund.
My “Oil Play”
I’m a fundamentalist in investment, and always do my own DD before committing a buy or sell order. I also believe in value investing, often on the hunt for excellent stocks that are temporarily undervalued, or are simply hammered due to a market slide.
Recently I’ve been looking at Bolt Technology Corp (BTJ), a company that specializes in technologies and devices of marine seismic energy exploration for the oil and gas industry. Its fundamentals are strong, with a lower-than-peers P/E, good cash reserve, and zero long-term debt. Considering the recent run in the energy sector, I think BTJ has great potential to go up, esp. with its ER coming up next week.
In the long term, demand for energy will only be higher and higher. Furthermore, investing in companies such as BTJ avoids the risks of directly buying into the oil companies, of which the stock prices usually have larger fluctuations.
Let’s wait and see what will happen for BTJ in the coming weeks.