3 Reasons to Consider a Roth IRA

When it comes to retirement planning, you will be faced with a variety of options. One of the most important things to remember, with regard to various savings or income-generating vehicles, is not only how they benefit you in the future, but also how a particular option might benefit you now!

For example, traditional retirement accounts allow you to save pre-tax money for retirement. Obviously the long-term benefit is the potential payoff from growth within those accounts, but in the short term you benefit from reduced taxable income. On the other hand, a Roth account is funded on an after-tax basis, so it doesn’t help you with income taxes right now…. But your distributions in retirement will come tax-free.

So, as you can see, there are always short-term versus long-term tradeoffs.

Aside from tax-free income in retirement, there are other reasons to consider opening and funding a Roth account (either a Roth IRA or Roth 401k).

Uncertainty over tax reform. It would be a mistake to assume that today’s tax structure will remain unchanged as you enter retirement, or in the years beyond. Changes to the income tax code can and do occur, so you have no idea what your tax burden will look like in the future. But your Roth withdrawals are guaranteed to be tax-free, so that part of your income will be unaffected by changes.

No distribution requirements. With traditional accounts, you’re required to begin distributions by age 70 ½, or else face a penalty. But you can leave your month in a Roth account as long as you wish, making it an excellent resource for those who expect a long lifespan.

Plan for emergencies. Imagine you’re retired, and all of your money rests in a traditional account. Withdrawals are taxable, so what happens if you experience an emergency and need to withdraw more money in any given year? You guessed it: Your tax bill will increase. With a Roth account, you have a source of tax-free income in the event of an emergency.

For more information on opening and funding a Roth account, give us a call. We can help you explore your options and decide upon a strategy that is right for your situation.