The Roth Versus The Traditional IRA: A Comparative Analysis

Abstract

This study provides economic analyses that allow wealth accumulation comparisons between a traditional IRA and Roth IRA. We performed economic analyses involving an investor with fixed pre-tax earnings or wealth available to invest in either the traditional or the Roth IRA, but not both. These analyses have shown that the traditional IRA has significant wealth accumulation advantages over the Roth IRA in all but rare circumstances. In our analyses, the traditional IRA outperforms the Roth IRA by accumulating more wealth available at retirement. Thus, our findings demonstrate that the Roth IRA is inferior to the traditional IRA as a wealth accumulation vehicle in all but rare circumstances.