Should you have a Roth account?

CNBC’s Jim Cramer provided guidance on how investors can decide whether to save in a loss account. He explained that most of this decision has to do with how much you expect your income to grow and whether your savings will be taxed now or in the future.

He highlighted that the Roth account is related to two different retirement accounts: the 401(k) and the Individual Retirement Account (IRA). The main difference between Roth and non-Roth accounts is that Roth money is taxed when you put it into the account, not when you withdraw it after a few years, Cramer said.

“When deciding whether to choose between a Roth IRA or 401(k) and a regular IRA or 401(k), the question is whether it makes sense to pay your income tax in the Roth now or wait and pay. You have to make a decision, and when you retire, you’ll be paying income tax on your regular account,” Kramer said. “The bottom line is, when you retire, you are trying to figure out whether you are in the higher tax bracket or the lower tax bracket.”

Cramer stressed that there is no one-size-fits-all approach to the issue, and that some investors may be constrained by their employer’s retirement plans.

But he said a good rule of thumb for those with a marginal tax rate of less than 22% is to pay that burden up front so that the account can be compounded tax-free until retirement. Cramer also noted that Roth’s account allows you to withdraw your invested funds after five years without a 10% penalty.

“The lower your current income, the lower your tax rate,” Kramer says. “I mean, the lower your income, the more likely Roth is right for you. It’s that simple. And when you’re saving for retirement, it’s going to be deadly in 30 or 40 years.” Don’t worry about things that might go wrong, just worry about making the best choice for now.”