I'm a young adult who currently invest in Vanguard index fund using money from my paycheck, which is already taxed.
What is the difference of doing this compared to put the money into a Roth IRA first, then tell my IRA provider to invest in index fund?
To me, it seems like the Roth IRA is better than and has no downside compared to my current situation of using non IRA. The Roth IRA takes in money after tax (similar to my current situation) but allows earnings to grow tax free (better than my current situation, in which I have to pay long-term capital gain tax when I withdraw).
Even if I have to withdraw early from the Roth IRA, the penalty is 10% only on the earnings, which is still lower than the long-term capital gain tax on my earnings.
Is this understanding correct?