Should you Invest in a Roth IRA?

Investing in a Roth IRA account may be the wisest way you save for retirement. There are many different ways that you can plan for your retirement, but putting your money in a savings account may not be the best plan for your future however. Not all IRA accounts are the same and you may be better off with a Roth IRA than a traditional one. Finding the best performing Roth IRA will also require you spend some time researching.

The Differences Between a Roth IRA and a Traditional IRA

Roth IRAs were created to help middle-class Americans save for retirement. Roth IRAs are not tax-deductible, but are more flexible than traditional IRAs. A difference between a traditional IRA and a Roth IRA is that contributions to a Roth IRA are not tax-deductible. You can withdraw the money you invest in a Roth IRA and will not be taxed on it. You will, however, be taxed on your earnings. After five years, though, both contributions and earnings in a Roth IRA can be withdrawn without penalties or taxes. Also, you can use the money from a Roth IRA to invest in a new home or education without being taxed.

The Advantages of a Roth IRA

An advantage of the Roth IRA over a traditional IRA is that there are fewer withdrawal restrictions and IRA retirement rules. You have more freedom with a Roth IRA to move your money around with different investments within the account – it’s similar to a self-directed 401(k). Although the amount of your contribution is more limited with a Roth IRA, the flexibility of how you invest your money is greater. Another advantage to opening a Roth IRA is that, after the age of 59 1/2, all contributions and earnings may be withdrawn tax-free. It is important to do your research, compare Roth IRA accounts and consult with a financial professional when planning for retirement. Use a retirement calculator to figure out how much you’ll need to retire comfortably. Once you have all of the information, you can make the best choice for your future financial goals.

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