Which Roth IRA is the best for a 21 year old who has about $1500?
Your question seems like you don't understand what a Roth IRA is. A Roth IRA isn't an investment, per se. It is just a type of account that receives special tax treatment.  Just like a checking and savings account are different at a bank, a ROTH IRA account is just flagged as such by a brokerage. It isn't an investment type, and there aren't really different ROTH IRA accounts.  You can invest in just about anything inside that account so that is what you need to evaluate. One Roth IRA account is as good as any other.As to what to invest your money in inside a ROTH, that is a huge question and off-topic per the rules against specific investing advice. You are young, and therefore have a very long time horizon for investing. Absolutely nothing you do should involve paying any attention to your investments more than once a year (if that). First off, you can only deposit money in an IRA (of whatever kind) if you have taxable income. If you don't, you can still invest, just without the tax benefits of a Roth. My suggestion would be to open an account with a discount brokerage (Schwab, Fidelity, eTrade, etc). The advantage of a brokerage IRA is that you can invest in whatever you want within the account. Then, either buy an S&P 500 or total market index fund within the account, or buy an index-based ETF (like a mutual fund, but trades like a stock). The latter might be better, since many mutual funds have minimum limits, which ETFs do not. Set the account up to reinvest the dividends automatically--S&P 500 yields will far outstrip current savings account yields--and sit back and do nothing for the next 40 or 50 years. Well, except for continuing to make annual contributions to the account, which you should continue to invest in pretty much the same thing until you have enough money (and experience and knowledge) to diversify into bond funds/international funds/individual stocks, etc. Disclaimer: I am not a financial planner. I just manage my own money, and this strategy has mostly kept me from stressing too badly over the last few years of market turmoil. You're young.  Build a side business in your spare time.  Invest in yourself.  Fail a few times when you have some time to recover financially. Use the money that you would have let sit in some account and develop your skills, start up an LLC, and build up the capacity to get some real returns on your money. Be a rainmaker, not a Roth taker.
I don't recommend Roth for those in the 25% bracket. If you are in the 25% bracket now, I'd suggest you go pretax and as you are planning to be in a lower bracket in a few years, use that bracket to convert. Depositing today at 25% to convert at 15% in a few years puts you that much ahead.  I understand the allure of a Roth heavy strategy. And the fuzzy crystal ball for what the tax code will look like doesn't help. That said, a retiree today who is a few years too young for Social Security will see an Exemption + STD deduction of $10,000, and a 15% bracket ending at $36,250, so $46,250 total with a total tax bill of $4991. A retiree should target $250K-$500K pretax to stay flexible and not miss these low brackets in the future. The idea behind a Roth IRA is taxes will go up in the future so you are best off paying less in taxes now than in the future, which is why Roth IRAs are contributed to with post-tax dollars whereas traditional IRAs are contributed to with pre-tax dollars. The theoritical advantage comes when you want to withdrawal your money. With the traditional IRA, when you withdrawal money, you pay ordinary income tax on all withdrawals. With a Roth IRA, all withdrawals (after the age of 59 1/2) are tax free, including any gains you may have made. To illistrate, with a very simple example, assume you make $50,000 and your IRA grows at 5% for 40 years. Traditional IRA - $5,000 Roth IRA - $3,750 ($5,000 after taxes) Traditional IRA - $604,000 Roth IRA - $453,000 Traditional IRA - $604,000 / 15 = $40,266 * 75% (25% tax) = $30,200 / year Roth IRA - $453,000 / 15 = $30,200/ year First, this was not a contrived example and I was surprised the numbers worked out this way. Second, as you can see with this example there is really no advantage either way unless you by into the theory of higher taxes in the future. I would just buy a low-cost diversified equity ETF. VTI is pretty solid. Also, JW are you working or in school? If you are working you should consider opening an IRA or Roth IRA. Also if your employer has a 401k or other retirement plan you can contribute to I would advise doing so. "That depends, really. Generally speaking, though - Roth IRAs are THE PLACE for Stock-Market/Mutual-Fund investing. All the off the wall (or, not so off the wall) things like Real Estate investments, or buying up gold, or whatever other ideas you hear from people - they may be good or bad or whatnot. But your Roth IRA is maybe not the best place for that sort of thing.  The whole philosophy behind IRAs is to deliberately set aside money for the future. Anything reasonable will work for this. Explore interesting investment ideas with today's money, not tomorrow's money. That being said - at your age I would go for the riskier options within what's available.  If I were in your situation (and I have been, recently), I would lean toward low-fee mutual funds classified as ""Growth"" funds.  My own personal opinion (THIS IS NOT ADVICE) is that Small Cap International funds are the place to be for young folks. That's a generalized opinion based on my feel for the world, but I don't think I'm personally competent to start making specific stock picks. So, mutual funds makes sense to me in that I can select the fund that generally aligns with my sense of things, and assume that their managers will make reasonably sound decisions within that framework. Of course that assumption has to be backed up with reputation of the specific MF company and the comparative performance of the fund relative to other funds in the same sector. As to the generalized question (how else can you work toward financial stability and independence), outside of your Roth IRA: find ways to boost your earning potential over time, and buy a house before the next bubble (within the next 18 months, I'm GUESSING)." Something that's come up in comments and been alluded to in answers, but not explicit as far as I can tell: Even if your marginal tax rate now were equal to your marginal tax rate in retirement, or even lower, a traditional IRA may have advantages.  That's because it's your effective tax rate that matters on withdrawls. (Based on TY 2014, single person, but applies at higher numbers for other arrangements): You pay 0 taxes on the first $6200 of income, and then pay 10% on the next $9075, then 15% on $27825, then 25% on the total amount over that up to $89530, etc.  As such, even if your marginal rate is 25% (say you earn $80k), your effective rate is much less: for example, $80k income, you pay taxes on $73800.  That ends up being $14,600, for an effective rate in total of 17.9%. Let's say you had the same salary, $80k, from 20 to 65, and for 45 years saved up 10k a year, plus earned enough returns to pay you out $80k a year in retirement.  In a Roth, you pay 25% on all $10k.  In a traditional, you save that $2500 a year (because it comes off the top, the amount over $36900), and then pay 17.9% during retirement (your effective tax rate, because it's the amount in total that matters).   So for Roth you had 7500*(returns), while for Traditional the correct amount isn't 10k*(returns)*0.75, but 10k*(returns)*0.821.  You make the difference between .75 and .82 back even with the identical income.  [Of course, if your $10k would take you down a marginal bracket, then it also has an 'effective' tax rate of something between the two rates.] Thus, Roth makes sense if you expect your effective tax rate to be higher in retirement than it is now.  This is very possible, still, because for people like me with a mortgage, high property taxes, two kids, and student loans, my marginal tax rate is pretty low - even with a reasonably nice salary I still pay 15% on the stuff that's heading into my IRA.  (Sadly, my employer has only a traditional 401k, but they also contribute to it without requiring a match so I won't complain too much.)  Since I expect my eventual tax rate to be in that 18-20% at a minimum, I'd benefit from a Roth IRA right now. This matters more for people in the middle brackets - earning high 5 figure salaries as individuals or low 6 figure as a couple - because the big difference is relevant when a large percentage of your income is in the 15% and below brackets.  If you're earning $200k, then so much of your income is taxed at 28-33% it doesn't make nearly as much of a difference, and odds are you can play various tricks when you're retiring to avoid having as high of a tax rate. "I'd suggest you avoid the Roth for now and use pretax accounts to get the greatest return. I'd deposit to the 401(k), enough to get as much match as permitted, then use a traditional IRA. You should understand how tax brackets work, and aim to use pre-tax to the extent it helps you avoid the 25% rate. If any incremental deposit would be 15% money, use Roth for that. Most discussions of the pre-tax / post tax decision talk about 2 rates. That at the time of deposit and time of withdrawal. There are decades in between that shouldn't be ignored. If you have any life change, a marriage, child, home purchase, etc, there's a chance your marginal bracket drops back down to 15%. That's the time to convert to Roth, just enough to ""top off"" the 15% bracket.  Last, I wouldn't count on that pension, there's too much time until you retire to count on that income. Few people stay at one job long enough to collect on the promise of a pension that takes 30+ years to earn, and even if you did, there's the real chance the company cancels the plan long before you retire." "I'd first put it in CDs or other short term account. Get through school first, then see where you land.  If you have income that allows you to start a Roth IRA, I'd go for that, but keep it safe in case you actually need it back soon. After school, if you don't land a decent job fast, this money might be needed to live on. How long will it last if you take a few months to find work?  If you do find a good job, moving, and setting up an apartment has a cost. Once you're there, I'd refer you to the many ""getting started"" Q&As on this site." I think you're missing several key issues here. First for the facts: IRA contributions are $5500 a year maximum (currently, it changes with inflation), i.e.: you cannot deposit $10K in an IRA account in a single year. IRA withdrawals can only be made if you have something liquid in the IRA. You cannot withdraw from Lending Club IRA unless you manage to sell the notes currently held by you there. Roth IRA is funded with after-tax money, and you can withdraw your deposits in Roth IRA any time for any reason. No 10K limit there, only limited by what you deposited. However the main thing you're missing is this: You can withdraw up to $10K from your IRA for first home purchase without penalty. Pay attention: not without tax but without penalty. So what is the point in depositing $10k into IRA just to withdraw it the next year? Make sure you are hitting the actual max of the 401k. Most think it is 18K, but that is the amount you can contribute into either pre-tax or roth. On top of this, you can also contribute using an after-tax contribution (treated differently from Roth). Total amounts up to 54k (since you are under 50).  One thing I would look into for ways to beat interest rates in bank accounts and CDs is Municipal Bond funds, given your high income. I have seen some earning almost 6% tax-free YTD. These also give you liquidity. Definitely keep your 3 mo salary in the bank, but once you get over that while maxing out your 401k, this is a pretty good way to make your money work for you, without crushing you come tax time.   Building that muni bond fund account gradually, you can eventually use that account to pay for things like car payments, mortgage, rent, vacation, etc. Just be sure if you go with a mutual fund, that you are aware of any surrender charge schedules. I have seen this done with C Shares, where you can withdraw your investment without penalty after 1 year.   Let me know if this is unclear or you would like any additional information. Best of luck! For a young person with good income, 50k sitting in a savings account earning nothing is really bad. You're losing money because of inflation, and losing on the growth potential of investing. Please rethink your aversion to retirement accounts. You will make more money in the long run through lower taxes by taking advantage of these accounts. At a minimum, make a Roth IRA contribution every year and max it out ($5500/yr right now). Time is of the essence! You have until April 15th to make your 2014 contribution! Equities (stocks) do very well in the long run. If you don't want to actively manage your portfolio, there is nothing wrong (and you could do a lot worse) than simply investing in a low-fee S&P 500 index fund. Your math is correct. As you point out, because of the commutative property of multiplication, Roth and traditional IRAs offer the same terminal wealth if your tax rate is the same when you pull it out as when you put it in.  Roth does lock in your tax rate as of today as you point out, which is why it frequently does not maximize wealth (most of us have a higher tax bracket when we are saving than when we are withdrawing from savings). There are a few other potential considerations/advantages of a Roth: Roth and traditional IRAs have the same maximum contribution amount.  This means the effective amount you can contribute to a Roth is higher ($5,500 after tax instead of before).  If this constraint is binding for you and you don't expect your tax rate to change, Roth is better. Roth IRAs allow you to withdraw your contributed money (not the gains) at any time without any tax or penalty whatsoever.  This can be an advantage to some who would like to use it for something like a down payment instead of keeping it all the way to retirement.  In this sense the Roth is more flexible. As your income becomes high, the deductibility of traditional IRA contributions goes to zero if you have a 401(k) at work (you can still contribute but can't deduct contributions).  At high incomes you also may be disallowed from contributing to a Roth, but because of the backdoor Roth loophole you can make Roth contributions at any income level and preserve the full Roth tax advantage. Which type of account is better for any given person is a complex problem with several unknowns (like future tax rates).  However, because tax rates are generally higher when earning money, for most people who can contribute to them, traditional IRAs maximize your tax savings and therefore wealth. Edit: Note that traditional IRA contributions also reduce your AGI, which is used to compute eligibility for other tax advantages, like the child care tax credit and earned income credit.  AGI is also often used for state income tax calculation. In retirement, traditional IRA distributions may or may not be state taxable, depending on your state and circumstances. "GreenMatt - this is a good question, and a question I have asked about whether to invest in a Roth IRA, or a traditional IRA. This is my take on the picture, I'm not sure about your tax situation and how much you'd have to pay for each conversion you did, whether you have extra money to pay those taxes, etc. In my opinion I don't think it would be a good idea to use your 401(k) principal to pay taxes, but to have the extra money to pay these when rolling over so you don't lose any interest, especially since you're near the ""end"" of your ""snowball"" effect with interest in your retirement account. Here is a resource to consider. Also, another thing to consider that I don't really see much of on here is inflation. If you're going to be in the same tax bracket as you are now, and if whatever you're contributing to your 401(k) or traditional IRA is NOT bumping you down in the 15% bracket, then I would suggest doing a ROTH IRA. I say this because to me, when I retire, I would have rather paid my taxes throughout the years (I'm 23 and in 25% marginal tax bracket) in a ROTH IRA and pay nothing when I'm withdrawing in 30 years, factors people forget to consider are that the Cost of Living is going to be MUCH MUCH higher for me down the road, and the cost of sending a child to school is going to be much higher as well. Since your child is young, consider this site for the cost of a college education for your child. This is comparing the average cost of education for someone attending college in 2015 versus 2033 (a child born IN 2015). While this seems drastic, and there could be a lot of different things that happen by that time, it's a decent illustration. While the website provided certainly isn't validated by the DoE, I have read multiple articles about this, and they are all very similar. Again, other things could happen between now and your child's college career, but if college becomes ""free"" we're paying for it, and if it's not free and raises at historical rates you're paying for it. I also don't really want to comment on what is going to happen with taxes over the years, I'm not sure where you live (I'm in the U.S.), but IMO I believe they either A) won't change or B) will raise slightly. As far as SS goes, I think it's fair and definitely more than reasonable to not expect SS in retirement. I'm definitely not counting on it." You are mistaken about a Roth IRA. You can take out your contributions at any time with no penalty as long as you don't touch the gains. Also, if the money has been in for 5 years you can withdraw for a first time home purchase. Your concerns about locking up the money are troublesome. You need discipline to save for retirement. That is a known massive expense you will have and it takes a LONG time of saving up to prepare. Be sure to account for the taxes you may owe on the winnings before you start spending the money. Before you sink the money into a down payment on a house, make sure you have several (preferrably) six months of living expenses in savings. If you don't have investment experience, steer away from individual stocks. Invest in index funds with low expense ratios and don't actively trade. I just checked TCF's rates, and they only pay a miserly rate of 0.25%. Banks like Capital One or Sallie Mae pay about 1.15%, which is more than 4x, though still nothing great. Do you expect to use these funds in 5 years (e.g. for down payment on a house), or could you contribute them to an IRA? Your question indicates confusion regarding what an Individual Retirement Account (whether Roth or Traditional) is vs. the S&P 500, which is nothing but a list of stocks. IOW, it's perfectly reasonable to open a Roth IRA, put your $3000 in it, and then use that money to buy a mutual fund or ETF which tracks the S&P 500. In fact, it's ridiculously common...  :)