1 Major Reason To Choose A Roth Account For Your Retirement Savings
When planning for retirement, you'll need to figure out which type of retirement account best fits your needs to make the most of your money. Essentially, there are two main types of retirement accounts: traditional and Roth.
While the timing of when you are taxed is the main difference between them, there's one unique benefit of a Roth IRA that can make retirement planning less of a guessing game.
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Say goodbye to required minimum distributions
With tax-deferred retirement plans such as traditional IRAs and 401(k)s, you're required to start withdrawing a certain amount of money from your retirement accounts when you reach a particular age. This is known as a required minimum distribution (RMD). If you don't withdraw the required minimum amount when you're supposed to, you could face tax penalties.
Also, the money you withdraw could potentially push you into a higher tax bracket. This could be a shock to your finances if you're on a fixed income and haven't planned for it.
However, stashing money in a Roth IRA can help you avoid RMDs altogether. And starting in 2024, you're no longer required to start withdrawing money from designated Roth accounts in a 401(k) or 403(b) during retirement, so you can leave the money to your heirs or let it sit in your account. Plus, when you withdraw money from a Roth account, it will be 100% tax-free after you've met all the requirements.
Here's an example of how your money can grow if it stays invested for as long as possible.
|
Growing at 8% for |
$7,000 Invested Annually |
|---|---|
|
20 years |
$345,960 |
|
30 years |
$856,421 |
|
40 years |
$1,958,467 |
Chart and calculations by author.
If your income exceeds the limits to contribute to a Roth IRA directly, you can contribute to a traditional IRA and convert it to a Roth later. By investing your money in a Roth IRA, you can skip RMDs and have a better shot at building a million-dollar retirement account.
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