7 Reasons to Open a Roth IRA Today

When it comes to choosing a retirement plan, you have options. You can house your money in a 401(k), but if you don’t have one of those available through your employer, an IRA may be your next best bet. But really, that’s not a raw deal at all. In fact, if you opt for a Roth IRA, you may find that it’s actually the best savings tool out there. Here are a few reasons why it pays to open one.

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Social Security pays the average senior today about $18,000 a year. Chances are that’s not enough income for you to live on, so you’ll need some amount of money in a retirement plan to ensure that you’re able to keep up with your bills once your time in the workforce comes to an end. Enter the Roth IRA, which currently allows you to sock away up to $6,000 a year if you’re under 50, or $7,000 a year if you’re 50 or older.

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When you save for retirement in a traditional IRA, you get a tax break on your contributions up front, but your withdrawals are taxable during your senior years. Roth IRA withdrawals, however, are yours to enjoy tax-free, which could make things much easier on you financially once you’re retired and on a fixed income.

A Roth IRA makes sense when you expect your tax burden to increase during retirement. If you’re socking away a lot of money and also expect to have multiple income sources at your disposal as a senior, it may be that you’ll end up falling into a higher tax bracket at that point in life. If so, a Roth IRA makes sense. That way, you’ll pay taxes on that money now, when your bracket is lower, and then avoid taxes when your bracket is higher.

The money you put into a Roth IRA shouldn’t just sit there; it should be invested. And the great thing about Roth IRAs is that any gains you see in your account will be yours to enjoy free and clear of taxes. Gains in a traditional IRA, by contrast, are tax-deferred, so you don’t pay taxes on them year after year, but they still come into play.

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Most retirement plans mandate that you remove a portion of your savings balance each year once you turn 72. But a Roth IRA is the one savings plan that doesn’t impose required minimum distributions. That means you can keep your money invested as long as you’d like and continue to enjoy the tax-free gains we just talked about.

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Because Roth IRAs don’t force you to take required minimum distributions, you won’t wind up having to gradually draw down your account balance. That means you’ll have the option to leave some or all of your retirement savings to your heirs if you don’t end up wanting or needing to use that money yourself.

Though Roth IRAs are primarily used as a retirement savings tool, they can technically double as a college savings fund. Early withdrawals from an IRA can result in a penalty, but that won’t apply if you take out money to pay for higher education, which means you get more flexibility with your savings.

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Though there are plenty of different accounts you can use to house your retirement savings, it definitely makes sense to consider a Roth IRA. And if your earnings exceed the income limits for direct contributions, worry not -- you can always put money into a traditional IRA and convert it after the fact. That way, you’ll get to reap the aforementioned benefits, even as a higher earner.

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