With the duckets that I now have safe, I think I will retire at 66 years of age, praise God, in good health. -- Winslow Homer 

Famous American landscape painter Winslow Homer needed a certain sum in retirement savings to be kept safe in order to feel comfortable enough to retire. It's common to aim for a retirement nest egg of a certain size and to want those dollars kept safe. An IRA, especially a Roth one, can be a great way to save for your future financial security -- but, really, how safe is your Roth IRA?

Stack of hundred dollar bills locked up with a padlock

Image source: Getty Images.

Fortunately, the answer to that question is generally "pretty safe" -- and, therefore, that you should probably be contributing to an IRA. Let's take a closer look at the question, though, as much depends on what you mean by "safe."

The beauty of the Roth IRA

First, let's briefly review just what IRAs are and how they work. There are two main kinds of IRAs -- the traditional IRA and the Roth IRA. With a traditional IRA, you contribute pre-tax money, reducing your taxable income for the year and thereby your taxes as well. (Taxable income of $75,000 and a $5,000 contribution? You'll only report $70,000 in taxable income for the year.) The money grows in your account and is taxed at your ordinary income tax rate when you withdraw it in retirement. Many of us will be in lower tax brackets in retirement, so not only is our taxation postponed, but it's often reduced. That's the tax break you get with a traditional IRA.

A Roth IRA has the potential to be much more powerful than that. You contribute post-tax money to a Roth IRA, meaning that your taxable income isn't reduced at all in the contribution year. (Taxable income of $75,000 and a $5,000 contribution? Your taxable income remains $75,000.) Here's where the power of the Roth IRA lies, though: If you follow the rules, your money grows in the account until you withdraw it in retirement -- when it's yours free of taxes.

A yellow road sign that says "retirement ahead".

Image source: Getty Images.

Contribute to a Roth IRA to boost your future financial security

For some people, traditional IRAs will serve them best. For others, especially those with many years before retirement, a Roth IRA will serve them best. Most of us would do well to contribute to an IRA of either ilk.

So how much can you sock away in an IRA? Well, IRA contribution limits for 2017 are $5,500, plus an extra $1,000 catch-up contribution for those age 50 or older, letting those folks sock away as much as $6,500 for the year. For best results when saving for retirement with an IRA, contribute as much as you can -- and as soon as you can.

The table below shows how much money you can accumulate with annual $5,500 contributions at different average annual rates of growth:

Growing for

Growing at 8%

Growing at 10%

Growing at 12%

15 years

$161,284

$192,224

$229,643

20 years

$271,826

$346,514

$443,843

25 years

$434,239

$595,000

$821,337

30 years

$672,900

$995,189

$1.5 million

Data source: Calculations by author.

Remember, too, that contribution limits rise over time.

Small safe that's open, with money inside

Image source: Getty Images.

How safe is your Roth IRA?

So how safe is your Roth IRA? Well, it depends on what, exactly, you're asking. Will your investments in a Roth IRA be safe from market downturns? If you've invested some or all of it in stocks or in mutual funds that are invested in stocks, then no; if the market heads south, so will the value of those investments. That's when inexperienced or naive investors might bail, instead of realizing that the market will always have occasional downturns before recovering and going on to reach new highs. You can avoid stock market-related risk by sticking with investments that are thought of as safer, such as savings accounts, CDs, money market accounts, or bonds, but those have downsides, too. Bonds can help you diversify your portfolio, but they can also fall in value (if you sell them before maturity) -- as can bond mutual funds. And bonds, along with savings accounts, CDs, and money market accounts, have much smaller long-term average growth rates.

How safe is your Roth IRA from its administrator going out of business?

Another safety question to ask is whether your Roth IRA is safe from the company administering it going out of business. In most cases, the answer will be yes. Reputable brokerages offer insurance. Just as the FDIC insures bank accounts, the Securities Investor Protection Corporation (SIPC) insures brokerage accounts up to $500,000 per account (including up to $250,000 in cash).

Many brokerages even provide additional insurance in excess of the amounts provided by the SIPC. Ask your brokerage or the financial services company administering your IRA for clarification on what insurance protection it offers. The folks at the SIPC suggest that you look for the words "Member SIPC" on signs and in advertisements of brokerage firms.

In the world of saving and investing for retirement, you won't always have a guarantee that your money is safe. But that doesn't mean you shouldn't save and invest, as Social Security will probably not provide anywhere near as much income in retirement as you need. You can reduce your risk, though, by diversifying and by sticking with healthy and growing stocks and with well-regarded mutual funds run by talented managers.

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