Why grown-ups open Roth IRAs

When Sean McCarthy turned 18, he did two things: He bought a lottery ticket, and he opened a Roth IRA.

"The lotto ticket was the last of my poor decisions -- the financial kind anyway -- and the Roth IRA was my first financial decision to prepare for the future as an adult," says McCarthy, a 21-year-old social media coordinator in Camarillo, Calif.

Although retirement is a long way off for McCarty, setting aside money today will really pay off down the road, especially with the advantages of a Roth IRA. Here's why it might be a good idea for you to consider one, too:

Your earnings increase tax-free

Of the two types of individual retirement accounts, or IRAs, investment advisor Mathew Dahlberg tends to recommend a Roth IRA over a traditional IRA to around 90% of his clients.

That's because "$1,000 in a Roth IRA is worth more than $1,000 in a traditional IRA," says Dahlberg, who owns Main Street Investments in Kansas City.

It comes down to the way that a Roth IRA is taxed. With a traditional IRA, the money you contribute now is taxed when you take it out, whether in retirement or at another future date. With a Roth IRA, you pay taxes in the year you contribute, so all future earnings from compound interest and other gains can increase without being taxed.

"If you're young and expect to rise to a higher income bracket," Dahlberg says, "you'll pay less taxes on the money now than you would later."

The money can easily move with you when you change jobs

Most workers change jobs many times in a lifetime. A Bureau of Labor Statistics study of younger Baby Boomers found that on average they held nearly 12 jobs between the ages of 18 and 48. If you have an employer-sponsored retirement account such as a 401(k), you have to decide what to do with it each time you change jobs, which can be a hassle.

Roth IRAs have the advantage of being separate from your work, so your funds can keep growing tax-free without regard to your career changes.

Contributions are accessible in case of emergency

Although you can be penalized if you withdraw earnings early from a Roth IRA, you have penalty-free access to any contributions you have made. Since you've already paid taxes on that money, it's yours to use, which can be a lifesaver if you need cash urgently because of a medical emergency or other reason.

You can use the money for other life events

Outside of medical expenses, you can use funds from a Roth IRA penalty-free to buy your first home or fund a college education -- although, of course, what you use can no longer grow interest. If you want to buy, build or repair a home, you may be able to withdraw up to $10,000 as a qualified distribution from a Roth IRA. As for college, you can fund your education expenses or your child's, provided those expenses qualify under the IRS rules. Generally, tuition, fees, books, equipment and room and board may all be counted.

You might not be eligible forever

You can't contribute to a Roth IRA if your income rises beyond a certain level. If you're single and your adjusted gross income reaches $129,000, you are no longer eligible to deposit funds, according to current IRS rules. If you're married and file jointly with an AGI of $191,000, you also cannot contribute.

The tax code may change down the road as well, so consider this investment vehicle while it is available to you. You can contribute up to $5,500 a year to a Roth IRA. When you turn 50, the maximum contribution goes up to $6,500.

"It's better to contribute four to five years now even if you have to stop," says Dana Twight, financial advisor and owner of Twight Financial Education in Seattle, Washington. Even just a few years worth of funds can pay off big down the road because of compounding interest. And remember, when you turn 59 ½ years old, you can withdraw those funds tax-free.

Years after his 18th birthday, McCarthy continues to see the benefits of adding more to his Roth IRA every year.

"Having your money work for you before you start spending it -- that's the game plan right now."

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Spencer Tierney is a staff writer covering personal finance for NerdWallet. Follow him on Twitter @SpencerNerd and on Google+.

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