Should I open a Traditional or Roth IRA?May 9, 2012: 5:05 AM ET
If you're just out of school with a salary in the low 30s, is it better to open a traditional IRA or a Roth IRA?
—John Coussa, Eastchester, N.Y.
Open a Roth. The big difference between the two is when you will pay taxes. With a Roth, you pay now: You fund it with after-tax earnings and withdraw money tax-free. With a traditional IRA, you pay later: Contributions are tax-deductible at your earnings level; withdrawals will be taxed as ordinary income.
You want to pay up when you think your tax rate will be lower, says Columbia, Md., financial planner Michael Kitces. A sub-$35,000 salary puts you in the 15% bracket; between raises and tax hikes, you'll most likely pay higher taxes later on, says Kitces. That's why young adults are "fantastic" Roth candidates, he says.
Got a question for the help desk? Send it to