How is a Roth different from other IRAs? 

The major difference is how each investment account doles out the tax advantages. The Roth flavor of IRA allows you to contribute your post-tax dollars now and not worry about future taxes on that money. In other words: your money grows tax-free. On the other hand, a traditional IRA allows you to save on taxes now; you can deduct your contributions from the year’s taxable income (up to a certain income threshold). But you’ll have to pay taxes when it comes time to withdraw those funds in retirement.

(There are other types of IRAs, too, including SEP IRAs, Spousals IRAs and SIMPLE IRAs. But they’re designed to serve savers in specific situations and are not as broadly accessible as the Roth and traditional options.)

So which type is best for you depends partly on whether you’re better off paying taxes now or later. If you think you’ll be in a lower bracket when you make withdrawals in retirement—maybe because your retirement income levels may be lower—a traditional IRA may work better for you. If you expect you’ll be in a higher tax bracket in the future—either because you expect your income levels to rise over time (woo hoo!) or you think tax rates are bound to go up (womp womp)—a Roth may make more sense. 

And some experts swear by the Roth IRA either way. They figure that the sum you have later, after adding in investment returns, is bound to be higher than your total contributions. That means investing in a Roth account would save you from paying taxes on the higher amount. Also, they note that some people might simply prefer the certainty of paying taxes now rather than having to guess what the tax situation could be in the future. 

But this doesn’t have to be an either-or situation. You can hedge your bets and split your money between both Roth and traditional accounts. Just remember the contribution limits—up to $6,000 (or $7,000 if you’re age 50 or older) in 2020—are combined. So if you contribute $4,000 to a Roth IRA this year, you can only contribute up to $2,000 to your traditional account in the same tax year. There are also income restrictions on Roth IRA eligibility.

Am I eligible to invest in a Roth?

To contribute to either a traditional or Roth IRA, you must have taxable compensation for that year. And Roths have additional restrictions on who can contribute: Single filers with a modified adjusted gross income (MAGI) less than $124,000 can contribute up to the maximum amount allowed for the year. (If you’re married and filing jointly, your MAGI must be less than $196,000 to contribute the max.) If your MAGI is $139,000 or more ($206,000 for joint filers), you cannot contribute to a Roth. Anything in between, you can contribute a reduced amount.

You can contribute to a traditional IRA, no matter what your MAGI is. But how much of your contributions are deductible depends on your MAGI and whether you’re able to contribute to a retirement plan through your employer. If you do have a retirement plan at work, you can deduct the full amount up to the contribution limit, if your MAGI is $65,000 or less as a single filer, or $104,000 or less if you’re married and filing jointly. Without an employer-sponsored option available to you, single filers have no income limits on how much they can deduct while joint filers with a MAGI of $206,000 or more get no deduction.

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How do I open a Roth? 

You can open a Roth IRA online or in person through most any bank, broker or robo-adviser. (Acorns offers various IRA accounts, as well as a regular brokerage account.)

How do I invest in a Roth? 

Once you get your account set up, you must still set up your investments within it. And how you do that exactly depends on your broker. Some are more self-directed. You’d have to determine your preferred asset allocation and build your portfolio from scratch, selecting the stocks, bonds, mutual funds, exchange-traded funds or other available investments you want to invest in. Others, like Acorns, offer pre-selected portfolios designed to suit your personal financial goals and risk tolerance. 

Other benefits of investing in a Roth IRA 

On top of the future tax savings, one big selling point for investing in a Roth is its flexibility. You can withdraw your contributions anytime, for any reason, without getting docked for taxes or penalties. If you try to tap a traditional IRA before age 59½, your withdrawal is typically subject to both taxes and an additional 10-percent penalty. (There are some exceptions, like hardship distributions, that allow you to waive the penalty, but you’d still have to pay taxes.) If you dip into the earnings portion of your Roth account, you’ll generally have to pay taxes and penalties, too (though there are exceptions). 

Another Roth bonus: no required minimum distributions (RMDs). In the year you turn 72, you’re supposed to start taking RMDs from your traditional IRA—the government’s little way of making sure to get its cut of that money. But with a Roth, your money can stay invested and grow pretty much indefinitely. Then you can leave the full amount to a beneficiary and let them sort out what to do with their inheritance. 

Bottom line: A Roth IRA is a great way to invest for retirement and save on future tax bills. If you can contribute to one, consider adding it to your long-term financial plan.

Investing involves risk including loss of principal. This article contains the current opinions of the author, but not necessarily those of Acorns. Such opinions are subject to change without notice. This article has been distributed for educational purposes only and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed.