Roth IRA vs Traditional IRA - which one should I pick at 25?

Personal Finance

Im 25, making k as a marketing coordinator in Chicago. Just started taking finances seriously and want to open an IRA. I know traditional is pre-tax and Roth is after-tax but I dont really understand which is better for my situation. My company has a 401k but no match (I know, it sucks). Should I even bother with the 401k or just do an IRA? And which type?

David Jones

3 Answers

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At 25 making k, Roth IRA is almost certainly your best bet. Heres why:

Roth advantages for you:

Youre in a relatively low tax bracket now (22%)

You'll likely earn more later and be in higher brackets

Pay taxes now at 22%, withdraw tax-free in retirement when you might be at 32%+

All growth is tax-free forever

Can withdraw contributions (not gains) anytime without penalty

My recommendation:

Open Roth IRA at Fidelity or Vanguard (both free, easy)

Max it out (,000 for 2024)

Put it in a target date fund or total market index fund

If you still have money to invest, then do the 401k even without match (still tax advantaged)

Traditional IRA makes more sense when youre in high tax brackets (150k+) or need the deduction now. Thats not you yet. Go Roth and your future self will thank you.

Andrew Jackson

At 25 with room to grow, Roth 100%. Tax-free growth for 40 years is insanely valuable. Traditional makes sense when youre in peak earning years and want to reduce taxable income.

Emily Johnson

Another Roth benefit nobody mentions - you can withdraw CONTRIBUTIONS (not gains) anytime without penalty. Its like a backup emergency fund. Traditional locks you in until 59.5.