To help you figure this out, we will go through a few questions with you. Now, we understand that retirement may be a ways in the future and is hard to think about, but if you don't believe that you will need funds by age 70 ½, you would want to go with the Roth IRA. Eric plans to one day leave the “just getting by” lifestyle behind, and to have a luxurious early retirement. Liquidity is another consideration. Similarities between a Traditional IRA and a Roth IRA, Investment Lessons Learned from Successful Investors, Confusing Finance Terms Explained in Plain English, The Many Types of Investing Methods – a Breakdown, Fund withdrawals are taxed as income (at the income tax rate of your income at withdrawal), Will help you be in a lower tax bracket now, Will help you be in a lower tax bracket later, Early withdrawal of contributions = taxes + 10% penalty, Early withdrawal of contributions = No taxes, no penalty.

Clark likes discount investment houses like Vanguard, Fidelity, Schwab for the latter. However, in a Roth IRA, you don't have to do that; you can wait as long as you like to start distributing funds. The Motley Fool is a USA TODAY content partner offering financial news, analysis and commentary designed to help people take control of their financial lives. And what if I am older than 18? Si esperas que tus ingresos crezcan al momento de tu jubilación o retiro, una cuenta Roth IRA  será la mejor para ti.
At this point, you may be wondering what the point is, why should you care about tax brackets now versus later?

We’re not the kind of investing firm that you’re used to. For Roth IRAs, there is a phase-out based on your modified adjusted gross income (MAGI). In a traditional IRA, if you withdraw the funds you contributed early (before 59 ½ years old), you have to pay a 10% penalty as well as taxes. The main difference between a traditional IRA and a Roth IRA is when you pay tax on your money. If you're earning a lot of money right now, paying taxes this year might not make sense. Here's why a Roth IRA is better than a 529. But, if you can’t tip the scale, then it wouldn’t do anything for you. In these accounts, your money will grow over time because it is invested in a variety of stocks, bonds, mutual, and index funds. “Remember, in general, tax rates are likely to go higher over the years no matter which political party is in power,” he says. For traditional IRAs, the age at which you must take RMDs was recently raised from 70.5 to 72 per the SECURE Act. But when it's time to withdraw funds, things flip.