Is a Roth IRA Really Necessary for Retirement?

Posted on June 24, 2019 by in Retirement Planning

Is a Roth IRA Really Necessary for Retirement_

Retirement savings are important.

From regular 401(k) plans, to Roth IRA or alternative golden year savings, it’s always good to know you have plenty good options to fund your senior years.

Every young adult joining the workforce should start investing in an 401(k) as soon as they begin a new career. Few, however, are aware of the many benefits a Roth IRA can offer for a bright financial future.

Although not many are familiar with how various investment vehicles work, retirement funds and the latter actually have a lot in common. And the best way to ensure a stress free retirement is to plan ahead, decades in advance.

If you’re still reluctant to setting up a Roth IRA, here are 8 reasons to consider it a good decision.

Tax-free money in retirement

With a traditional retirement savings plan, the money you deposit towards your golden years are not subject to tax. This allows you to reduce the amount of income taxed, which makes for a great perk. You will, however, be required to pay taxes upon withdrawal.

With a Roth IRA though, things work the other way around.

In order to fund your account, you’re required to pay the taxes first. But before you think of it as a disadvantage, know that upon withdrawal, all the money is yours. And tax-free withdrawals sound good.

Withdraw your money, penalty free, when you need it

Roth IRAs have a lot of flexibility when it comes to withdrawing your contributions.

With only a few exceptions, taking money out of your Roth IRA is tax and penalty free.

Although not recommended, you can dip into your retirement contributions anytime you want. This is great news, if you ever find yourself in a pickle and need to fork up a lump sum of money for an emergency.

Great way to save for a big purchase

Since you can get your hands on your contributions whenever you need to, setting up a Roth IRA with the intent to save for a big purchase can turn out to be a good idea.

Keeping in mind certain withdrawal rules, you can safely tap your Roth Ira contributions and pay for your kids college, your first home or any other big purchase you planned on saving for for years.

You can set up a Roth IRA at any age

It’s usually adults who plan ahead and think about retirement, but wouldn’t it be nice to know your kids are responsible when planning their future?

As long as you have an income, you can set up a Roth IRA at any age. Custodial and guardian IRAs are, fortunately, available.

A Roth IRA plan helps maximize your contributions

Just like traditional savings plans, Roth IRAs make for great investment vehicles. Your money is safe and growing with each passing year.

Although a Roth IRA has its contribution limits, it’s still a great way to supplement your retirement income.

More investment options are suddenly available

With a 401(K), your investment options are quite limited. Whereas with an IRA, you get more freedom of choice to invest in diversified areas.

If your aim is to have a diversified investment portfolio, a Roth plan is a perfectly appropriate plan that can help. Stocks, bonds, CDs and even real estate count towards the possible investment options.

You’re not required to withdraw when you retire

Unlike other retirement savings plans, with a Roth IRA you’re not required to start withdrawing once you get the golden watch.

You can let your money grow in a tax free environment for as long as you want. Compound interest will work like a charm if you don’t have big plans with the money as soon as you retire.

Roth IRA contributions can be left as inheritance

Since you’re not required to take out your money from your IRA account, you can leave it as inheritance, should you choose to do so.

Leaving a 401(k) as inheritance is possible as well, but the catch is your heirs will be required to pay taxes on the total amount. With a Roth IRA though, your kids and loved ones won’t have to worry about fees and can enjoy their inheritance tax free.

Other great benefits characterize the setting up of a Roth IRA. These 10 though should be enough to tickle your interest into reading more about it and maybe, setting one up as soon as you get the chance!

Find out more about retirement planning here, on The All Finance.

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