Unfortunately, the days when companies offered generous pension plans are gone for many people. Planning on Social Security is also a risk that most people are unwilling to take. These days a person has to do his or her own retirement planning. 401k plans are great, but they can be volatile if mismanaged. For all of these reasons, you should consider the benefits of investing in a Roth IRA.
No Age Limit
Roth IRAs are the only investment minors can directly own. It is a common fact that there is no such thing as saving too early for retirement, and anyone, of any age, can open a Roth IRA as long as that person has income of some sort. Start your child saving young and he or she can put away money for college, thus avoiding the dreaded student loan debt, or have a giant head start building his or her retirement savings.
Almost Penalty Free
Because Roth IRA contributions come from previously taxed income, you can withdraw the money at any time you need it. In some cases there are penalties, such as if you withdrawal all of your contributions and tap your earnings before the account has been open at least five years, or if you are under 59 ½. However, the taxes and penalties are less than those associated with a traditional IRA or 401k plan.
Buy A House, Save on Taxes
As long as your Roth IRA account has been open for at least five years, you can withdraw up to 100% of your contributions and $10,000 of your earnings tax-free to use as a down payment on your mortgage. Young savers can take advantage of this to reduce the severity of their long-term mortgage debt.
Roth IRAs are limited to $5,000 in annual contributions. However, unlike 401k plans, you have a 16-month window to contribute to your Roth IRA instead of just one year. You can use those extra four months to play “catch-up” when you are having a particularly rough year.
Boost Your Own Investments
With a company 401k plan, your employer chooses how to invest your money. If you have a Roth IRA, then you have the ability to pick your own stocks, mutual funds or other commodities that you want to invest in. Most companies do a good job investing employees’ money, but there are exceptions to every rule. If you feel you could do better on your own, than a Roth IRA is the perfect vehicle for your retirement planning.
There are a multitude of other reasons to consider getting a Roth IRA such as building an inheritance for your children or grandchildren, controlling your own retirement planning without having to rely solely on stock picks and the rest of your portfolio, and saving on taxes. In the modern era of retirement planning, you do not need to ask if you should have a Roth IRA. The most important question you should consider is; how do I start my Roth IRA account?
About the Author: Rob Leab loves to study trends in finance and is always working towards his future. In addition to retirement planning, he spends a great deal of time on valuestockguide.com while learning about different trading markets.