For many people, this is a good time to reflect on 2023 while also evaluating what can be done to enhance their finances for the year ahead. And regardless of how far away retirement might seem, now can be a good time to make moves that positively affect it.
One decision that can go a long way is contributing to a Roth IRA. It's a retirement account that allows your investments to grow tax-free, with tax-free withdrawals in retirement as long as you're 59 1/2 years old and made your first contribution at least five years before. Because of the tax benefit of a Roth IRA, contributing now could save you thousands down the road.

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Save your money for retirement, not for Uncle Sam
For tax year 2023, the maximum contribution to an IRA is $6,500 ($7,500 if you're 50 or older). For tax year 2024, these maximums increase to $7,000 and $8,000, respectively.
For people who haven't taken advantage of an IRA this year, making a contribution before the year's end could pay off hugely down the road. According to the Rule of 72, it would take an investment 7.2 years to double in value if it averaged 10% in annual returns. A one-time $6,500 investment could grow to over $43,700 in 20 years, averaging those same returns.
The difference between making those investments in a traditional brokerage account and a Roth IRA is the tax you'd owe (or not) when you sell investments or withdraw in retirement.
Here are the 2024 capital gains tax brackets:
Capital Gains Tax | Single Filer | Married and Filing Jointly |
---|---|---|
0% | $0 to $47,025 | $0 to $94,050 |
15% | $47,026 to $518,900 | $94,051 to $583,750 |
20% | $518,901 or more | $583,750 or more |
Data source: IRS.
Furthermore under this example, if your $6,500 investment turns into $43,700, that would be $37,200 in capital gains. Depending on which capital gains tax rate you fall under, $5,580 to $7,740 could be saved in taxes.
Going beyond the tax break
Aside from the unique tax break of a Roth IRA, it can be a great complement to other retirement accounts like a 401(k) because of the flexibility that comes with it.
To begin, you can make virtually any investment in a Roth IRA that you could in a traditional brokerage account (though there might be exceptions for certain high-risk investments like options).
This is a stark difference from a 401(k), where your investment options are given to you by your plan provider. Having the flexibility to tailor your investments how you see fit helps ensure they truly align with your investment goals, retirement horizon, and risk tolerance.
A Roth IRA also provides more flexibility regarding early withdrawals. Your contributions to a Roth are always available to you without tax or penalty. You don't want to contribute to a retirement account if you intend to make early withdrawals, but life tends to create needs when you least expect them, and having access to your money without penalty can be a much-needed advantage.
Emergencies aside, withdrawals are also penalty-free for first-time homebuyers (up to $10,000) and can be used for qualified educational expenses like tuition, books, and other mandatory fees.
It's true that you can make a Roth IRA contribution for the 2023 tax year at any time before the tax filing deadline next April. However, there's no reason to wait if you have the money to contribute now. Even a modest investment today can work wonders and provide great long-term benefits. Your future self will likely be glad you made the move.