Picking the correct investment account to get started with can be difficult with all the options. Here’s why we recommend a Roth IRA…
Feautres of a Roth IRA
A Roth IRA is a type of individual retirement account that allows individuals to invest their money and earn tax-free withdrawals in retirement. There are several reasons why someone should consider starting with a Roth IRA when investing for their future.
First, contributions to a Roth IRA are made with after-tax dollars, which means that the money you contribute has already been taxed. In contrast, traditional IRA contributions are made with pre-tax dollars, and the money is taxed when it is withdrawn in retirement. This means that a Roth IRA offers the potential for tax-free withdrawals in retirement, which can be a significant advantage for many investors.
No Early Withdrawal Penalties
Second, Roth IRA contributions can be withdrawn at any time without penalty, which makes them a great option for those who may need access to their money before retirement. Traditional IRA contributions, on the other hand, are subject to a 10% early withdrawal penalty if taken before age 59 1/2. Read more about a Roth IRA vs. a Traditional IRA.
No Age Limits
Third, Roth IRA contributions do not have age limits for contributions, which means that individuals can continue to contribute to their Roth IRA even after they reach the age of 70 1/2, when traditional IRA contributions are no longer allowed. This makes a Roth IRA a great option for those who want to continue to save for retirement even as they approach their later years.
No Required Minimum Distributions (RMDs)
Fourth, Roth IRAs have no required minimum distributions (RMDs) unlike traditional IRAs, which means that you don’t have to start taking distributions at age 72. This can be a great advantage for those who want to keep their money invested for a longer period of time.
Hedge Against Tax Increases
Finally, Roth IRAs can provide a hedge against future tax increases. Since contributions are made with after-tax dollars, you won’t be hit with a tax bill on withdrawals, even if tax rates are higher in the future.
In summary, a Roth IRA is a great option for those looking to save for retirement. The potential for tax-free withdrawals, the ability to withdraw contributions without penalty, lack of age limits for contributions, no RMDs, and hedge against future tax increases are just a few of the reasons why someone should consider starting with a Roth IRA when investing for their future.