should i open an IRA? or Roth IRA? what return can I expect 25 years from now?

first try searching, there have been so many topics on this issue. Second, nobody knows what the future will hold. If you invest in a ROTH Ira you can take out your original amount tax/penalty free. There are many calculators that will show you how much that $5k can grow into, search the intranets.

Because you are in a relatively low tax bracket, it might be better to put money (2012) in a Roth IRA and let the money grow tax free (pay taxes on money now and not later).

If you wanted to you could put 2013's in a traditional IRA because you are now at the 25% bracket and will see more benefit from the $5k (actually $5500) tax deduction.

Either way, I think it would be beneficial to start an IRA as its never to early to open one. If you are worried about being able to access the money, I believe you can withdraw your principal at anytime without penalty (only withdrawal of earnings is subject to penalty).

I would look to maxing out 401k's with matching contribution before IRA's if applicable.

Quote from bta15 : Because you are in a relatively low tax bracket, it might be better to put money (2012) in a Roth IRA and let the money grow tax free (pay taxes on money now and not later). If you wanted to you could put 2013's in a traditional IRA because you are now at the 25% bracket and will see more benefit from the $5k (actually $5500) tax deduction. Either way, I think it would be beneficial to start an IRA as its never to early to open one. If you are worried about being able to access the money, I believe you can withdraw your principal at anytime without penalty (only withdrawal of earnings is subject to penalty). I would look to maxing out 401k's with matching contribution before IRA's if applicable.

Pretty good advice here.

As far as which to go with, just search the "intranets" as mentioned above and you'll come upon an overwhelming plethora of articles. At this point in time, it is very hard to say what the future is going to have in store. A few years ago I would have definitely recommended a Roth IRA, but in this environment, it very may well be better to have the tax benefit now. I'm currently in a similar situation in deciding what to do with my IRA contribution for the year. Probably going to flip a coin...

Why not both? At one point, I had four different retirement accounts.

I would tend to agree with bta15 and make the 2012 contribution to a Roth.

Depending on your income, you may also qualify for a Credit for Retirement Saving Contributions (Form 8880).

i believe i do qualify for the "credit of retirement saving contributions"
thanks for pointing this out!
this will give me another incentive for opening a IRA

25 years from now? At least 3 kids with 2 different women and one divorce.

I'm 28 and started really looking at my retirement when I was 24. My 401k allowed me to do Roth contributions and I haven't stopped since.

I think you got the right mentality: $750 is a nice little bump right now at 15%, but the potential return over such a long period is a better risk to take at this point. Plus in 35 years, if you "lose" your $5,000 it wont be as such a big hit as we may interpret right now, not to mention your income and tax bracket, statistically, are likely to go up by age 59. If you do a regular IRA, you'll just have to pay the higher tax bracket on your money then.

My take: Go Roth. The potential is too great to play it safe for just 15%.

How does ROTH IRA work and what is this $750 benefit (gain?) that you're talking about?

I have 401k which i contribute to match my company. but what can i do with a ROTH IRA account..don't i have to select my own mutual fund / stock etc..?

depends how many financial crises show up in the 25 yr period and how worthless the dollar becomes over time.

Quote from corrado85 : How does ROTH IRA work and what is this $750 benefit (gain?) that you're talking about? I have 401k which i contribute to match my company. but what can i do with a ROTH IRA account..don't i have to select my own mutual fund / stock etc..?

The $750 pertains to the traditional IRA. Contributions to a traditional IRA are tax deductible. Therefore if he made an eligible contribution of $5000 for the 2012 fiscal year, he would be able to claim a $5000 dollar deduction. If his tax rate is 15%, that deduction will net $750 to his tax refund.

And in regards to your other question, if you start a ROTH IRA at a place like Vanguard you would have to pick your own funds. But a good place to start would be in a retirement year target fund. I'm 30 and I invested in Vanguards 2045 target retirement fund.

Also, there are certain requirements to make TRADITIONAL (tax deductible) IRA contributions. I believe they are you cannot have a work provided retirement option (like 401k, 403b, profit sharing, etc) and make more than a certain amount of money (cant remember total, but its not that high, like 75-100k for single).

does that theory apply on contributing to 401k as well? say i put away $5k in 401k.. = ? tax refund

Quote from corrado85 : does that theory apply on contributing to 401k as well? say i put away $5k in 401k.. = ? tax refund

No...401k contributions are made from pre-tax dollars therefore you are never paying tax on them UNTIL you start making withdrawals. So no they are not tax deductible in the sense that they increase your tax refund at end of year.

To break it down:

401k- Your employer takes money from your check before you ever pay tax on it...It grows tax deferred until you make withdrawals, at which time you pay tax on your withdrawals (both principal and earnings).

Traditional IRA- You take after tax money from your pay check, contribute it to the Traditional IRA. At the end of the year that money is a tax deduction so you are not paying tax on it at this time. It grows tax deferred and when you begin withdrawals you pay tax on both principal and earning.

Roth IRA- you contribute after tax dollars from your paycheck, the money is not tax deductible. You money then grows tax free, when you make withdrawals at retirement age the withdrawals are tax free (both principal and earnings).

Thats how I understand it.