Building yourself a retirement nest egg is important. Without one, you might really struggle financially once you stop working and the paycheck you’re used to collecting stops coming in.
Now, when it comes to saving for retirement, you have choices. If your employer offers a 401(k) plan, it could pay to contribute to it — especially if there are matching dollars to be claimed. But if you don’t have access to a 401(k) plan through work, worry not. You can easily open an IRA account and save there instead.
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IRAs come in two main varieties — traditional and Roth. And according to recent data from Fidelity, across all generations, Roth IRAs seem to be the retirement savings vehicle of choice. In fact, Fidelity says more than 61% of all retirement plan contributions during 2022’s fourth quarter went into a Roth IRA.
If you’re looking for a home for your retirement savings, a Roth IRA could be a smart bet. Here’s why.
1. You’ll get tax-free investment gains and withdrawals
The money you sock away in a Roth IRA shouldn’t just sit in cash. Rather, you should invest it so it can grow into a larger sum over time.
The great thing about Roth IRAs is that investment gains are yours to enjoy completely tax-free. And withdrawals in retirement are tax-free as well.
The latter is a huge perk. Many seniors find that money gets tight once they stop working. Not having to pay taxes on what could be your largest source of retirement income means shedding a big financial burden.
2. You get more flexibility with your money
Most retirement plans require you to remove a sum of your savings balance each year (officially, it’s called taking a required minimum distribution). Roth IRAs, however, don’t have that requirement. And that means you’re free to do whatever you want with the savings you’ve worked hard to build.
Of course, many seniors inevitably find that they need to take consistent withdrawals from their savings to pay their living costs. But what if somehow you don’t end up needing most of your savings, either because you’ve accumulated a very large nest egg or because you’re someone who lives very frugally? In that case, a Roth IRA will give you the option to leave a large chunk of your savings to your heirs, if that’s a route you opt to take.
A great option for long-term savings
It’s easy to see why Roth IRAs have become such a popular savings choice. If you’re looking to start buckling down and building a retirement nest egg, then it pays to consider housing your money in a Roth IRA.
Now, one thing you should know is that higher earners cannot make contributions to a Roth IRA — at least not directly. That option is off the table this year if you earn more than $153,000 if you’re single or $228,000 if you’re married. But in that case, you can always open a traditional IRA and convert it to a Roth later on. So either way, the option to benefit from a Roth IRA should still be on the table.
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