Why Millennials and Gen Zers Should Invest in a Roth IRA

It's a solid retirement plan to consider.

When it comes to saving for retirement, you have choices. Many employers offer a 401(k) plan, and if you save in one of those, you might snag free money in the form of an employer match.

But if you don't have access to a 401(k) plan, you can open an IRA instead -- either a traditional account or a Roth. Both have their benefits. But Roth IRAs are a great choice for a number of key reasons.

How Roth IRAs work

When you put money into a Roth IRA, you don't get an immediate tax break on your contributions (whereas with a traditional IRA, you do). But instead, you get the benefit of tax-free investment gains in your retirement plan, and tax-free withdrawals during retirement.

The latter is a big deal, because many seniors feel squeezed financially during retirement, knowing they can't just easily go out and earn more money when they need it. And so not having to pay taxes on your retirement plan withdrawals could come in handy.

Why Roth IRAs are great for younger workers

Let's be clear -- anyone can benefit from putting money into a Roth IRA. But if you're younger, it could especially pay to fund one of these accounts.

Ideally, your earnings will increase as you further your career, leaving you with more money but also, a higher tax burden. If you're in the earlier stages of your career, you may not be making as much. And that means your tax bracket may be lower.

That's a good thing in the context of retirement savings. If you fund a Roth IRA, what you'll be doing is locking in your current tax rate on the money you contribute. That way, if you land in a higher tax bracket come retirement, it won't matter -- your money will be yours to enjoy tax free.

Roth IRAs can make less sense for older workers who earn a lot of money and are subject to higher tax rates. For people in that situation, a traditional IRA can sometimes be the way to go.

Maxing out your Roth IRA

Annual contribution limits for Roth IRAs can change from year to year. Right now, maxing out means contributing $6,000 a year if you're under the age of 50. If you're 50 or older, you get a $1,000 catch-up option, bringing your total allowable contribution to $7,000.

How to find the best Roth IRA

Most major brokerages let you open a Roth IRA. A few well-known players in the field include:

• Fidelity
• Charles Schwab
• Vanguard

Your goal in opening a Roth IRA should be to find an account that's easy to manage and doesn't cost you needless money. Specifically, you'll want to look for an account that won't impose fees every time you trade stocks in your account. Virtually all major brokerages have done away with this practice, though, so that shouldn't be a tough thing to find.

Keep in mind that if you choose to load up on mutual funds or ETFs (exchange-traded funds), you may be charged a modest transaction fee. Plus, mutual funds and ETFs come with self-imposed fees themselves (known as expense ratios). Those are ongoing fees you pay for holding those investments.

You'll also want to find a brokerage whose platform is easy to use -- both from your laptop and your phone. In fact, some larger brokerages allow you to do a test run to check out their platforms before committing actual money with them. That's a smart thing to do, because it will give you a sense of what it will be like to actively manage your account.

You should also look for a brokerage that's loaded with educational resources. The more you're able to learn about investing, the easier it will be to make smart choices for your savings.

The sooner you start, the better

If you're not sure when to open a Roth IRA, the answer is as soon as possible. The more time you give your money to grow, the more retirement wealth you're likely to accumulate.

In fact, imagine you're able to start funding a Roth IRA with $300 a month at age 25. Keep up that practice until age 65, and you'll be looking at a very impressive $933,000 if your investments in that account manage to generate an average yearly 8% return. That 8% return is actually a couple percentage points below the broad market's average, so it's a reasonable one for a 40-year investing window.

But the longer you wait to open your Roth IRA, the more growth potential you lose out on. So if you're ready to start building your future, compare your Roth IRA choices and start pumping money into that account.