10 Reasons to Open a Roth IRA in 2022

Despite their low contribution limits, Roth IRAs remain one of the most popular retirement accounts around. That's because they offer some rare perks you won't find anywhere else.

They're not for everyone, but if any of the following 10 benefits appeal to you, you may want to think about opening one this year.

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With a 401(k), you're usually restricted to a few mutual funds your employer picks out for you. And these aren't always cheap or well suited to your investment strategy.

A Roth IRA gives you a lot more freedom to invest your money how you choose. You'll have the choice of mutual funds and exchange-traded funds, but you can also invest in individual stocks if you feel comfortable doing so. This gives you a lot more control over your portfolio's performance and your annual fees.

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Workplace retirement accounts often require you to designate a specific portion of each paycheck to divert to the account, and you aren't able to make any one-time contributions. You also can't make any prior-year contributions.

Roth IRAs do allow for one-time contributions and prior-year contributions up until the tax filing deadline for that year. Many providers also enable you to link a bank account and set up an automatic contribution schedule if this is easier for you.

A Roth IRA is a retirement account you open on your own, and just about anyone can do so. As long as you've earned income during the year or you're married to someone who is, you can contribute up to $6,000 in 2022 or $7,000 if you're 50 or older.

The only people who can't contribute to a Roth IRA are those who aren't earning money during the year or those who are earning too much based on their tax filing status. The government imposes income restrictions on Roth IRAs, forcing high earners to contribute to a traditional IRA and then do a Roth IRA conversion in the same year if they want to take advantage of one of these accounts.

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People of any age can contribute to a Roth IRA, even minors. The only catch is they have to earn enough income to cover all their contributions. But this can be a great way for teens and young adults to get a jump-start on their retirement savings, even if they don't yet qualify for a workplace retirement plan.

There's also no upper age limit for Roth IRA contributions. You can continue contributing for as long as you're earning income.

You don't get a tax break when you put money in a Roth IRA this year. But since you're paying taxes up front, you get to enjoy tax-free withdrawals later on.

This is a huge plus for those in lower tax brackets. By paying taxes now, you can lock in your lower tax rate. This could save you a lot of money compared with paying taxes on your contributions and earnings later on with a tax-deferred retirement account.

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The government doesn't tax your Roth IRA earnings as long as you wait to withdraw your funds until you're at least 59 1/2 or you have a qualifying reason for withdrawing them sooner, like a large medical expense.

Only Roth accounts offer this perk, and it could save you quite a bit, especially if you start contributing to a Roth account when you're young.

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You're allowed to withdraw your Roth IRA contributions at any age without penalty. You've already paid taxes on these, so the government isn't too fussed about what you do with these funds.

This can give you some added peace of mind if you're worried about tying up your money for decades. But it's still best to leave your retirement savings alone if you can afford to do so. Taking early withdrawals will just make it more difficult for you to reach your savings goal.

Roth IRAs are the only retirement account without required minimum distributions. These are mandatory annual withdrawals that you must take from all your other retirement accounts beginning in the year you turn 72.

For most people, they're not an issue. But it's nice that you don't have to take any money out of your Roth IRA if you aren't ready to. You can leave the money in your account to grow for as long as you want.

If you don't end up using all your Roth IRA funds, you can always pass them on to your heirs after you die. And because you paid taxes on the contributions, your heirs won't have to worry about owing the government anything when they withdraw these funds.

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The nine reasons already discussed list the benefits of opening a Roth IRA at any point. But if you need an extra incentive to open one this year, here it is: If you want to withdraw your Roth IRA earnings tax free, you must wait until you're at least 59 1/2 and you've had a Roth IRA for at least five years.

The five-year countdown starts in the year you open the IRA. So if you open one at any point in 2022, you will be able to access your funds penalty free on Jan. 1, 2027, assuming you're old enough. If you're nearing retirement age, it's important to keep this in mind so you don't accidentally cost yourself money by making withdrawals too soon.

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While there's a lot to love about a Roth IRA, it might not be the best or only suitable retirement account for you. If you're still unsure about opening one, you might consider pairing a Roth IRA with another account.

A 401(k) is a great choice if you have access to one. You can start saving here until you've claimed your full match for the year. Then, you can switch to the Roth IRA until you've maxed it out and then return to your 401(k) if you want to set aside even more. Explore a few options until you find a strategy that works for you.

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