You're ready to start saving for retirement, but should you go with a Roth IRA or a regular IRA?
It can be so confusing and you may think that one is just as good as the other. However, there are benefits to choosing a Roth IRA. Let's take a closer look at why you should invest in a Roth IRA instead of a regular IRA.
There's No Taxes on Earnings
One of the best reasons to choose a Roth IRA is that you don't have to pay taxes when you withdraw money from the account. Better yet, you don't have to pay income tax on any of the earnings that you gain from having the money invested. This is huge. The only drawback is that you will not get the tax breaks on contributions you get if you were to use a regular IRA.
Get the Money You Need When You Need It
Let's face it. Sometimes there are emergencies that we can't afford. With a regular IRA, you would be penalized for withdrawing money from the account. With Roth IRA, you can withdraw the money at any time without any penalties. This is because you've already paid the taxes on this income. The only thing to remember is that you can't take out more than you've contributed. If you touch the money that has been earned through investment before you turn 59 ½, you will have to pay taxes.
You should also have an emergency fund outside of your Roth IRA of 3 to 6 months of expenses. You definitely want to avoid pulling money from your Roth IRA unless absolutely necessary so you don't jeopardize your retirement.
No Taxes for Beneficiaries
When you pass away, your heirs will not have to worry about paying taxes on the funds in your Roth IRA. This can make it much easier for your children handle your estate after your passing.
It Makes Financial Sense
You simply can't overlook the fact that, when it comes to payout, a Roth IRA makes financial sense. No one wants to deal with taxes when they retire. You also don't want to pay money on the amount earned while the money was in the account.
You may be tempted to go with a regular IRA because of the current tax benefits, but you'll end up paying more in the long run. If you can, it's worth it to put your money into a Roth IRA. Not only will you not have to pay taxes when you retire, but you can also access the money you've contributed when you need it without having to pay any penalties. It's truly the best option.
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