If you’re like most Americans, you’re probably not saving enough for retirement. In fact, according to a recent study by the Employee Benefit Research Institute, only about one-third of workers have savings in a 401(k) or other defined contribution plan. And even fewer have savings in an individual retirement account (IRA).
Bill Schantz of Mid Atlantic Financial LLC says one way to boost your savings for retirement is to invest in a Roth IRA. With a Roth IRA, you contribute after-tax dollars (that is, money that has already been taxed) into the account. The money then grows tax-free, and you can withdraw it tax-free in retirement.
There are income limits for contributing to a Roth IRA, but if you’re eligible, it can be a great way to boost your retirement savings. Here’s how it works according to Bill Schantz:
The contributions you make to a Roth IRA are not tax-deductible. However, the money grows tax-deferred, and you can withdraw it tax-free in retirement.
To be eligible to contribute to a Roth IRA, you must have earned income from a job or business. There are also income limits for contributing to a Roth IRA. For 2021, the contribution limit is $6,000 (or $7,000 if you’re age 50 or older).
If you’re not eligible to contribute to a Roth IRA, you can still benefit from the account by rolling over money from a traditional IRA or 401(k) into a Roth IRA. The money will be taxed as income when it’s rolled over, but then it will grow tax-free and can be withdrawn tax-free in retirement.
Roth IRAs are a great way to boost your retirement savings. If you’re eligible to contribute, be sure to take advantage of this account. And if you’re not eligible to contribute, consider rolling over money from a traditional IRA or 401(k) into a Roth IRA. Either way, you’ll be glad you did when you retire.
Why Investing in a Roth IRA Makes Sense According to Bill Schantz?
- The money you contribute to a Roth IRA is taxed before it’s invested, so you won’t have to pay taxes on it when you withdraw it in retirement.
- You can withdraw your contributions at any time, without penalty.
- The earnings on your investments grow tax-free.
- You can use your Roth IRA to help pay for college expenses, or first-time homebuyer costs, without penalty.
- If you withdraw money from your Roth IRA before age 59 1/2, you may be subject to a 10% early withdrawal penalty, but there are a few exceptions.
Investing in a Roth IRA is a great way to save for retirement, and it can also offer some great tax benefits. Bill Schantz says that you must talk to your financial advisor to see if a Roth IRA is right for you.