In a world bombarded with investing advice, it can be tough to figure out which individual retirement account (IRA) is right for you.

Ideally, you want to begin investing for retirement as soon as you start earning an income. While many young adults may think there’s no need to rush into funding a retirement account outside of an employer-sponsored plan, nothing could be further from the truth. The sooner you begin to invest, the more compound interest you will be able to accumulate.

An IRA is one great way to save for your retirement, but it’s important to understand the differences between a traditional IRA and a Roth IRA. Some factors to consider include: the tax benefits, the types of investments in the accounts, how much you can contribute, and where to invest.

Should I Choose a Traditional IRA or a Roth IRA?

With a traditional IRA, you may invest pre-tax dollars into the account until you reach the age of 70 ½, at which point you must start withdrawing money and paying taxes on those withdrawals on an annual basis.

According to the traditional IRA rules, if you withdraw money before the age of 59 ½, you’ll usually have to pay a 10 percent penalty. However, there are some expenses for which you may withdraw money that are exempt from this penalty, including:

  • Health insurance premiums, if you are unemployed
  • Unreimbursed medical expenses
  • First-time home purchase expenses, up to $10,000
  • Qualified higher education expenses

Payments if you become disabled and payments made after your death to a beneficiary or estate are also considered qualifying distributions that are not subject to the 10 percent tax.

With a Roth IRA, you contribute post-tax dollars and will not have to pay taxes upon withdrawal—as long as you meet certain requirements. Once you reach 59 ½, you may withdraw the earnings without paying taxes as long as it has been five years since you made your first contribution.

As with a traditional IRA, there are rules about withdrawals. You would face penalties, in addition to having to pay taxes on the earnings, if you withdraw the earnings from your Roth IRA before age 59 ½ and if you’re withdrawing your contributions plus interest. If you’re only withdrawing up to the amount you’ve contributed and not touching what you’ve earned in interest, you may not face income taxes.

You can avoid early withdrawal penalties if you are taking out money for a qualified first-time home purchase or because you have become disabled. As with a traditional IRA, payments or distributions made to a beneficiary or your estate on your death are also considered qualifying distributions.

Know the maximum contribution you can make to an IRA

It is important to know the allowable contribution limits when considering an IRA. Your salary determines the maximum amount you can contribute toward the accounts, and if you earn too much, you may not qualify to make contributions at all.

In general, the annual contribution limit to all of your traditional and Roth IRAs is $5,500 if you are single and under age 50 or $6,500 if you’re over age 50. However, if your earned income is somewhere between $183,001 and $193,000, you are only allowed to contribute a reduced amount to your 2015 Roth IRA. And if you make $193,000 or more, you cannot contribute anything at all to a Roth IRA.

Research where to invest your money for retirement

Now that you are aware of some of the options outside of an employer-sponsored plan, you may want to consider where you are able to open an investment account. While searching for the best firm to manage your IRA, make sure to take note of the operating fees. Too often, investors are concerned with market volatility and they fail to notice the fees that can eat into their account’s profit.

Consider starting with a trusted neighborhood financial advisor who will take into consideration your needs and concerns, financial institutions, and registered investment companies.

When trying to choose between a Roth IRA or Traditional IRA, keep the following in mind:

  • How much you would like to save for retirement
  • The maximum amount you are allowed to contribute to a retirement account each year, and how much you can afford to contribute
  • Your investment goals
  • The tax advantages
  • The penalties

Bahiyah Shabazz is the founder and CEO of both Shabazz Management Group and Fabulous & Money Savvy. She has appeared and given financial advice on various media outlets, and is the author of Women Building Wealth.