Should I open a Traditional or Roth IRA?

[slipperybanana]

Hey Guys,

I'm 23 and I made about 40k in 2014. After standard deductions and other deductions, it seems like I will fall into the 15% tax bracket. Going into this year, my salary is now 65k, so I will be in the 25% tax bracket range in 2015. I don't know if I should go with opening a Roth or a traditional IRA right now. I read the MadFIentist article on Traditional vs. Roth, but I don't know my plans when I turn 60, and I'm not sure if I'm going for early retirement. I just want to have a lot of money when I do decide to retire. However, I do believe in finding a job I love, and I hope to still be doing something I love when I'm older and making money doing it at the same time. I also want to be able to withdraw money in case I need it without suffering a penalty, and I believe the Roth IRA will allow me to do this(however, this is not a huge priority). Thus, I'm in a dilemma of whether I should go with a Traditional or Roth IRA right now. Can anyone give me advice?

[davisgang90]

Not a tax guy or a financial analyst.  In your situation, I'd go traditional IRA and take the tax benefit.  You can always convert it to Roth ladder to access if you decide to retire early.

[FIace]

Do you have access to a tax deferred plan at work?  If so, I would contribute the max to that plan which would get you back into the 15% tax bracket (or at least pretty close with deductions and exemptions).  Then any leftover money for investments could go into the Roth IRA to give yourself more flexibility for future withdrawals.  If not, do the Traditional IRA and hope that the government doesn't close the backdoor Roth loophole in the future. 

[slipperybanana]

Do you have access to a tax deferred plan at work?  If so, I would contribute the max to that plan which would get you back into the 15% tax bracket (or at least pretty close with deductions and exemptions).  Then any leftover money for investments could go into the Roth IRA to give yourself more flexibility for future withdrawals.  If not, do the Traditional IRA and hope that the government doesn't close the backdoor Roth loophole in the future.

The only tax-deferred plan I have with my employer is a HSA that I have maxed out. My employer doesn't offer a 401k or anything of that sort. I'm leaning towards opening a Roth IRA since I'm only in the 15% tax bracket now because I prefer the flexibility of being able to withdraw money out if I need it. Also, I could always open a traditional IRA in the future if I decide that's better for me right?

[Joel]

I utilize my roth when I am in the 15% tax bracket. Traditional when in the 25% or higher bracket.

[MDM]

Yes, you can have different types of IRAs in different years.  You can even contribute both to a traditional and a Roth in the same year.  But you can't contribute more than a total of $5500 (or whatever the IRS allows in the future) in any given year.

Your choice of a Roth given your situation in life (apparently on an upward salary trajectory) is reasonable.

[OriolesFan89]

I'm in the same boat as you. I'm well into the 25% bracket and young. I have been contributing to Roth IRA and Roth 401k. I have a hard time thinking I'll be making less money in 5+ years so once I'm in the 28% bracket, maybe I'll phase myself into traditional in a few years.

Of course, these brackets could very easily change drastically in the future. There is only a finite amount of money you can put into Roth accounts in your life so I figure take advantage of that while I can.