When it comes to saving for retirement, you have choices. You can opt to participate in your employer's 401(k) plan or open an IRA through a bank or financial institution. And while IRAs have lower annual contribution limits than 401(k)s, they typically offer lower fees and a wider range of investment choices, making them a solid bet.

But within the realm of IRAs, you have two choices as a salaried worker: the traditional IRA and the Roth. With the former, you get an immediate tax break for making contributions, which is why this option tends to hold lots of appeal. But while Roth IRAs don't give you an instant tax break on the money you put in, they're still an extremely valuable retirement savings tool -- perhaps the most valuable one out there. Here's why.

Envelope with hundred-dollar bills sticking out of it labeled Roth IRA.


1. You get tax-free withdrawals in retirement

Retirement is a financially tricky period of life to navigate. Suddenly, you've gone from a steady paycheck to a measly Social Security benefit, all the while continuing to bear most of the living expenses you did while you were still working. Of course, a healthy retirement savings account can help supplement your Social Security income so that you're able to live comfortably, but when you throw taxes into the mix, an otherwise nice-looking savings balance quickly gets diluted.

Imagine you're sitting on $500,000 in retirement savings and plan to withdraw 4% of that balance annually for a total of $20,000. That may seem like a decent chunk of cash on top of your Social Security income, but wait -- if your savings are housed in a traditional IRA, that $20,000 isn't all yours to keep, because you'll need to pay taxes on your withdrawals. Roth IRA withdrawals, on the other hand, are completely tax-free, so if you're planning to remove $20,000 annually from your account, that full $20,000 will be yours to spend.

2. You're not liable for required minimum distributions

When you keep your retirement savings in any tax-advantaged account other than a Roth IRA, the IRS forces you to remove a portion of your balance each year or otherwise face hefty penalties. The sum you're forced to take out of your account is called your required minimum distribution, or RMD, and it comes into play once you turn 72. (Note that RMDs used to begin at 70 1/2, but following the recently passed SECURE Act, that deadline has been pushed back.)

Of course, the problem with RMDs is that once you remove money from your retirement savings, it is no longer invested and growing in a tax-advantaged fashion. With a traditional IRA or 401(k), your savings get to grow on a tax-deferred basis; you don't pay taxes on gains every year, but rather, on the sum you remove each time you take a withdrawal. With a Roth IRA or 401(k), those gains are completely tax-free. But whereas Roth 401(k)s impose RMDs, Roth IRAs don't, so you get to capitalize on that tax-free growth for as long as you'd like.

3. You can leave your IRA to your heirs

The purpose of RMDs is to get you to withdraw your retirement savings balance in your lifetime. As such, if you have savings in a traditional IRA or any type of 401(k), you can't leave that money to your heirs. With a Roth IRA, your retirement savings, or a portion thereof, can serve as an inheritance if that's the route you choose to take. And your beneficiaries will then be entitled to tax-free withdrawals from that account in their lifetime.

Saving for the future in any tax-advantaged retirement plan is a smart move that could make your senior years stress-free and enjoyable. But if you really want to make the most of your savings, consider housing them in a Roth IRA. The only catch with Roth IRAs is that higher earners are barred from contributing to them directly. For the current year, you can't fund a Roth IRA if your earnings exceed $139,000 as a single tax filer, or $206,000 as a married couple filing jointly. But if that's the case, you can always fund a traditional IRA and convert it to a Roth after the fact. You'll pay taxes on the sum you move over, but you'll then get to reap the aforementioned benefits that make Roth IRAs such an outstanding choice for your savings.