Should You Invest in a Roth IRA? Here's What Dave Ramsey Thinks

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  • Retirement investors have multiple choices for tax-advantaged retirement investing.
  • A Roth IRA is a popular option, and one favored by Dave Ramsey.
  • There are several reasons investing in a Roth IRA can be a good choice, including tax-free growth.

Ramsey likes Roth IRAs, but does that mean they are the right choice for you?

Dave Ramsey is a finance guru dedicated to helping people improve their financial lives. As part of that effort, he obviously wants to ensure his readers and listeners are making smart choices when it comes to retirement savings.

In many cases, Ramsey believes that involves investing in a Roth IRA.

A Roth IRA is a tax-advantaged retirement plan you can open with a brokerage firm you select. But unlike some other plans, such as a traditional IRA or 401(k), you don't get an upfront tax break for investing in one. Instead, you are allowed to take out money as a senior without being taxed at your ordinary income tax rate (as you would be with traditional accounts). But you pay taxes upfront on the money you're contributing to the account.

Ramsey has spoken out repeatedly abou why he believes investing in a Roth IRA is the best choice for many people. Here are some of the big reasons why he believes most people should pick this account type.

Roth IRAs allow for tax-free growth

According to Ramsey's blog, Roth IRA accounts have some "serious benefits" and the most notable advantage is: "Your retirement savings go a lot further as it grows tax-free."

As Ramsey explains, "If your account grows by hundreds of thousands of dollars over time, you won’t owe taxes when you withdraw that money in retirement! That’s a huge perk, especially for folks who expect to be in a higher tax bracket when they retire."

Since many seniors struggle with too little income, the fact that all your gains can be withdrawn without giving the IRS a cut -- and you won't have to worry about a tax bill after your paychecks stop -- can be a huge advantage.

You may even be able to avoid potential taxes on Social Security benefits by opting for a Roth instead of a traditional IRA or traditional 401(k). That's because the money you take out of a Roth doesn't count towards determining if your income is high enough to render your benefits taxable.

You get more flexibility in distributions

Ramsey also believes you should consider putting your retirement money into a Roth IRA because doing so means you won't have to follow required minimum distribution rules.

"You’re not required to take distributions at a certain age, unlike the traditional IRA (which requires withdrawals beginning at age 72)," Ramsey explained. If you don't want to have to take out money you don't need -- and pay taxes on it -- just because the government requires it, a Roth IRA is one of the few tax-advantaged retirement plans you can make use of.

Since you don't have to take money out on a schedule that generally has you withdrawing most of your investments during your lifetime, Ramsey also points out you have the option to choose beneficiaries to inherit a Roth IRA as well. This can make it possible to set your loved ones up for wealth building.

You can keep contributing if you work past retirement

Finally, Ramsey points out that Roth IRA rules allow you to keep making contributions if you continue working past the standard retirement age. You just have to make sure you don't exceed income limits for Roth contributions.

Each of these advantages is significant, so it's easy to see why Ramsey believes a Roth IRA is a great place to invest for your future.

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