I'm 22. Should I Invest for Retirement in a Traditional IRA or a Roth?

Q: I am 22 years old, I work in a professional field, and I make about $35,000 a year. What plan would be the best for me to start saving for retirement, a traditional IRA or Roth IRA?

A: “I would recommend starting with the Roth because you’re in a lower tax bracket,” says Michael Fein, president of financial advisory firm CIC Wealth.

With a regular IRA, you contribute pre-tax dollars, and the money you save grows tax-deferred—but you'll pay ordinary income taxes when you pull the funds out during retirement. By contrast, you put after-tax dollars into a Roth IRA, where it grows tax-free, and pay no income taxes on your withdrawals in retirement.

Given that you’re probably earning much less than you will later in your career—and are therefore in a relatively low tax bracket—it probably makes sense to pay income taxes now, when a smaller percentage will go to the government.

“The other thing is a Roth has more flexibility than a regular IRA,” Fein says. "The only way of getting money out of a regular IRA is you can take a 60-day loan,” he says. Otherwise, you generally owe taxes and penalties on early withdrawals. With a Roth, there's no penalty if you decide to use the money to, say, buy your first house or go back to school. (This only applies to the money you contributed, not any earnings that may have accrued in the ensuing years.)

“So, for a younger person trying to force savings, the flexibility is helpful,” Fein says.

Another reason Roth IRAs are good for younger investors is that they let you get a jump on building a tax-protected nest egg while your earnings are low. That's important because Roth contributions are limited above certain income levels—currently $116,000 for single filers and $183,000 for couples filing jointly—and phase out entirely at $131,000 for single filers or $193,000 for joint filers. (The government generally increases those limits over time.)

All that said, if you expect to be in a lower tax bracket when you retire, you could be better off with a traditional, tax-deferred IRA. Of course, few of us can accurately predict our future income level, so it may make sense to diversify your retirement savings by putting at least some into a conventional tax-deferred IRA or 401(k) plan in addition to funding a Roth. That way, you get some tax advantages no matter what happens to your income over time.

As Fein says, “When you do financial planning, it’s all about flexibility.”