A Roth IRA flips the tax scenario. You pay taxes when you make the contribution, but you don’t pay taxes when you withdraw the money. This allows your money to grow without the looming threat of future taxes. You still have to wait until age 59 ½ to make withdrawals without penalty, but there is no age when you must start taking withdrawals. Paying taxes now rather than later in a Roth IRA can make sense for:
Everything depends on your specific situation. Start with your employer’s offerings, take advantage of matching contributions and expand your exploration of IRA basics from there.
- Future high earners. If you plan to be in a higher tax bracket later on, then taking the tax hit now might make more sense.
- Retirement savings superstars. If you already have a lot in a traditional 401(k), the Roth IRA can be a good choice because today’s tax rate likely is lower than the tax rate of the future.
As always, we’ve got your back. — The On Your Own Team
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