A 30-second read by Nicholas Scheibner: Before deciding which kind of IRA to open, the first thing you would want to do is check with your employer about 401(k) offerings. If your employer provides any company match into a 401(k) you will want to contribute to that account before you start an IRA. That way, you are able to take advantage of the “Free Money” provided by your employer. A Roth IRA is usually best for someone who is in a lower tax-bracket. The idea is that you want to pay taxes in the lowest bracket possible. So if you are making a lower income than you may in the future, you would want to pay taxes now, using a Roth.
Also, if you expect to be making less income now than in the future, a Roth is a good way to “prepay” taxes. You can’t avoid paying taxes, and the decision between a Roth and a Traditional IRA is, “pay taxes now or pay taxes in retirement?” Since a Roth provides tax-free withdrawals in retirement, the account provides for “tax diversification” that compliments your 401(k), traditional IRA, and taxable brokerage accounts.
If you have any further questions, don’t hesitate to contact the Baron Financial Group team.