More young people are beginning to plan for retirement than ever before, starting as early as 18-25 years of age. This allows a much longer time period to prepare and weigh the options versus starting later in life. Starting the process as soon as possible is the first step in the right direction, but this path can get quickly de-railed by the confusion of retirement investments. That is why so many young planners are turning to the Roth IRA.
The Roth IRA provides individuals with the opportunity to start contributing up to $6,000 per year into their retirement savings. The benefits that come with the Roth IRA versus the traditional IRA or other retirement savings plans are also well suited for young investors. Here are the top three reasons America’s millennials are choosing the Roth IRA for their retirement planning.
1. You pay no taxes at withdrawal.
This sounds too good to be true to most people, but it is! One of the most significant advantages to a Roth IRA is that, at the time of withdrawal, the funds will be tax-free. You do have to pay taxes on your contributions year to year but, for most, it is easier to pay taxes at a young age with a steady income than when you begin to use your retirement funds later in life.
Over time, your money has the potential to grow to a sizable amount, and, if you chose to invest in a traditional IRA, you will have to pay taxes on the money you invested as well as the money you acquired. By the time you withdraw from your IRA, chances are you will be living on a fixed income and trying to make your money last. The last thing you want is to lose a considerable amount to the IRS when you need it the most.
2. It can benefit you when purchasing a home.
Planning for your retirement is a huge part of planning for your future, and so is planning to buy a home. This is another way a Roth IRA could positively impact a young investor’s life. Saving for a home can be difficult, and things may not always go as planned. If you are a first-time homebuyer, you can withdraw from your Roth IRA without taxes or penalties. Traditional IRAs, on the other hand, are subject to 10% penalties and are not tax-free.
As long as you haven’t owned a home in two years and have had your Roth IRA for at least five years, you may withdraw from the amount contributed at any time to put towards the purchase of a home. This allows you to feel more confident in the home-buying process. We understand that saving for your future can be scary, especially when you can’t access these funds in an emergency. Investing in a Roth IRA gives you more wiggle room to save for your future, without pressing pause on the present.
3. You are in control.
When you invest in a Roth IRA, you can invest through a directed IRA custodian. This means the money is self-directed, giving you the power to choose how to invest your money. This offers you more control versus mainstream investing channels such as a 401(k). When you invest in a 401(k), the employer holds all of the authority. With an IRA, you can choose how your funds are channeled, whether it’s traditional assets like stocks, mutual funds, and bonds or alternative assets like real estate, precious metals, LLCs, and more.
Thanks to your IRA custodian, you will also have a guide to help along the way. It is an excellent opportunity for young investors to learn about investments before their peers, and allows them to get ahead of the game. You can learn the significant impact a Roth IRA can make for your savings account, and your future, while remaining in control!
Roth IRAs, IRA Custodians, & You
Investing at an early age is always a solid plan, and you don’t have to do it alone! We offer educational tools, resources, and access to trusted IRA custodians. Retirement can be confusing. It’s full of complicated rules, regulations, penalties, benefits, and risks. That’s why we have articles like these to keep you informed.
Young investors are turning to the Roth IRA because they want to be an active part of their retirement journey, and they want to get started as soon as possible. The Roth IRA is ideal for young investors wanting to learn and grow along the way with their money. If you wish to start small or begin taking leaps towards your savings plan, don’t hesitate. Get started today!