3 Reasons You Should Be Saving for Retirement in a Roth IRA

There’s a reason many people opt to save for retirement in a traditional IRA. These accounts offer a tax break on the money you contribute. And it’s hard to pass up an immediate tax break in favor of a future one.

But if you’re not saving for retirement in a Roth IRA, you may be making a huge mistake. Here’s why you should consider keeping at least some of your long-term savings in a Roth IRA.

1. You won’t face taxes on investment gains

The IRS has a sneaky way of taxing any income you come into. So in addition to your paycheck from work and the wages you earn via your side hustle, the IRS has a right to tax gains in your investment portfolio.

However, there’s an exception for investment gains in a Roth IRA. With a Roth IRA, you can contribute $100,000 over time that grows into $1 million. And guess what? The IRS won’t be able to take a piece of your $900,000 gain.

2. You’ll get tax-free income during retirement

Many seniors find retirement to be a financially stressful period of life. And it’s easy to see why.

There’s something disconcerting about living off of savings and no longer going out and earning a paycheck. So it’s nice to not have to worry about paying taxes on retirement plan withdrawals.

With a Roth IRA, taxes aren’t a concern, since withdrawals are yours to enjoy tax-free. And that’s important for more than one reason.

The reality is that we don’t know what tax rates will look like in the future. They could go down, but they could also go up. With a Roth IRA, tax increases in the future don’t necessarily have to be a huge point of concern, especially if you’re getting the bulk of your retirement income tax-free.

3. You won’t be forced to spend down your savings

Not only do traditional IRAs expose you to taxes on your withdrawals in retirement, but they also impose required minimum distributions (RMDs). RMDs effectively force you to spend down your savings over time — at least within the context of tax-advantaged retirement accounts like traditional IRAs and 401(k)s.

But Roth IRAs don’t impose RMDs. This means you can manage your savings however you want. It also means that if you so choose, you can arrange for younger generations in your family to inherit your IRA, or whatever portion of it you don’t feel you need to spend on your own needs.

Get help making your choice

Although there are plenty of good reasons to open a Roth IRA, these plans aren’t automatically suitable or optimal for everyone. So if you’re on the fence, talk to a qualified financial advisor.

An advisor can tell you whether a Roth IRA is right for you based on factors that include your income, tax bracket, and eventual retirement goals. And if you earn too much money to be eligible to contribute to a Roth IRA directly, an advisor can help you arrange for a Roth IRA conversion so you can benefit from one of these accounts regardless.

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