A Roth IRA is a popular retirement savings account that offers tax advantages to individuals who invest their after-tax income. It has gained significant attention due to its potential to provide tax-free income during retirement. The question of whether a Roth IRA is worth it depends on various factors such as the individual’s financial goals, current tax situation, and time horizon.
To understand the value and benefits of a Roth IRA, it is crucial to dive deeper into its features and advantages. A Roth IRA operates differently from a traditional IRA or a 401(k) retirement plan. Traditional IRAs and 401(k)s provide a tax deduction on contributions, allowing individuals to reduce their taxable income in the year they make contributions. In contrast, Roth IRA contributions are made with after-tax dollars, offering no immediate tax deductions.
One of the significant advantages of a Roth IRA is its tax-free growth potential. Unlike traditional IRAs or 401(k)s, which are taxed upon withdrawal during retirement, qualified distributions from a Roth IRA are entirely tax-free. This means that any investment earnings, dividends, or capital gains generated within the account can be withdrawn free of tax liabilities, provided certain conditions are met.
The tax-free nature of a Roth IRA is extremely beneficial for individuals who anticipate being in a higher tax bracket during retirement. By paying taxes on the contributions upfront, individuals can effectively lock in their current tax rate and withdraw the funds tax-free later in life. This can result in significant tax savings, especially for individuals who expect their income or tax rates to increase in the future.
Another advantage of a Roth IRA is its flexibility when it comes to withdrawals. Unlike traditional IRAs or 401(k)s, which require individuals to begin taking required minimum distributions (RMDs) at age 72, a Roth IRA has no RMDs during the account owner’s lifetime. This feature allows individuals to continue accumulating tax-free growth within the account for as long as they wish, providing the possibility of passing on a substantial tax-free inheritance to beneficiaries.
Additionally, a Roth IRA offers flexibility in terms of early withdrawals. While it is generally not recommended to withdraw funds from a retirement account before age 59½ due to potential penalties, a Roth IRA allows individuals to withdraw their contributions (not earnings) at any time without incurring penalties or taxes. This feature can be advantageous for individuals who need emergency funds or want to access their investment gains before reaching retirement age.
Furthermore, a Roth IRA can provide individuals with greater control over their retirement income and tax planning strategies. Since Roth IRA withdrawals are not subject to income tax, individuals can strategically withdraw funds during retirement to manage their taxable income. This flexibility allows individuals to minimize their overall tax liability and potentially maximize other benefits or deductions that are income-dependent, such as Social Security benefits.
While there are numerous benefits of a Roth IRA, it is important to consider potential drawbacks and limitations as well. One of the primary concerns is the annual contribution limit imposed by the Internal Revenue Service (IRS). As of 2021, the maximum annual contribution limit for a Roth IRA is $6,000 for individuals under 50 years old and $7,000 for individuals aged 50 and above (catch-up contributions). These limits may seem sufficient for many individuals, but high-income earners may find them restrictive compared to other retirement savings options.
Additionally, there are income limits imposed on individuals looking to contribute to a Roth IRA. For the 2021 tax year, single taxpayers with modified adjusted gross incomes (MAGIs) above $140,000 and married couples filing jointly with MAGIs above $208,000 are not eligible to contribute directly to a Roth IRA. However, there are alternatives such as the “backdoor Roth IRA” strategy, which involves making non-deductible contributions to a traditional IRA and then converting it to a Roth IRA. This strategy can help high-income earners bypass the direct contribution limitations.
Understanding the tax implications is critical when evaluating the worthiness of a Roth IRA. While the upfront tax payment can be an advantage, it is crucial to assess the present and future tax rates to determine the long-term value of a Roth IRA. If an individual is currently in a high tax bracket and expects tax rates to increase in the future, a Roth IRA might be a wise investment choice.
It is important to note that the performance of investments within a Roth IRA also plays a significant role in its worthiness. A Roth IRA offers investment options such as stocks, bonds, mutual funds, and exchange-traded funds (ETFs). The performance and growth of these investments over time can greatly impact the overall value of the account. Therefore, it is crucial to select suitable investments and regularly review and adjust them to align with the individual’s risk tolerance and retirement goals.
Moreover, another factor to consider when evaluating the worthiness of a Roth IRA is the individual’s overall financial situation and goals. If an individual already has access to an employer-sponsored retirement plan, such as a 401(k) with a matching contribution, it is generally recommended to contribute enough to receive the full match before considering a Roth IRA. This is because an employer match provides an immediate return on investment that may outweigh the potential long-term benefits of a Roth IRA.
Additionally, individuals should also consider their short-term financial obligations, such as high-interest debt or emergency savings. Paying off high-interest debt and establishing an emergency fund are typically seen as higher priority financial goals before fully committing to long-term retirement savings, including a Roth IRA.
To further assess the worthiness of a Roth IRA, it can be beneficial to compare it to alternative retirement savings options. For example, a traditional IRA or 401(k) offers immediate tax deductions, which can be advantageous for individuals looking to reduce their taxable income in the present. On the other hand, a Roth IRA provides tax-free growth and withdrawals during retirement, which can be preferable for individuals seeking tax-free income in the future.
Individuals should also consider their personal risk tolerance and investment preferences when evaluating a Roth IRA. If an individual prefers a more hands-off approach to investing or lacks the knowledge and interest in managing an investment portfolio, a Roth IRA may not be the best fit. In such cases, seeking professional financial advice or exploring other retirement savings options, such as target-date funds, may provide a more suitable and hassle-free investment experience.
In conclusion, a Roth IRA can be worth it for many individuals, but it ultimately depends on their specific financial circumstances, goals, and preferences. The tax-free growth and tax-free withdrawals during retirement make a Roth IRA an appealing option, particularly for individuals anticipating higher tax brackets in the future. The flexibility in terms of withdrawals, control over taxable income, and potential for passing on tax-free inheritance are additional advantages. However, the contribution limits, income limitations, and the upfront tax payment should be considered. Evaluating the worthiness of a Roth IRA involves analyzing factors such as present and future tax rates, investment performance, overall financial situation, and alternative retirement savings options. Seeking professional financial guidance can also be beneficial in making an informed decision.
Yes, max it every year. Put it in an index fund like total stock market or s&p 500
Opening one up is pretty straightforward. This sub recommends that you use Fidelity, Vanguard, or Schwab.
You’d need to open the account, then fund it, and then actually invest the money from within the account. One thing to look into would be “Target Date Retirement Funds.” You pick the date that would be close to when you want to retire. While you’re still far out from that date, the fund will invest more aggressively, and over time, will shift to less risky investments. It’s a good approach if you want to “set it and forget it.”
> I have no clue really on what to do and what the benefits are.
You avoid capital gains taxes with the Roth IRA. Also, you can withdraw CONTRIBUTIONS without penalty if you need to (though you would want to avoid this if at all possible). And remember, the sooner you start, the better. Start early, and let that compounding growth do its thing.
Absolutely.
Pick your favorite provider, the top 3 are generally considered to be: Vanguard, Fidelity, Schwab.
Go to their website and open an IRA. Submit an initial funding order, select your investment, and then put in whatever you can a year (up to the max). Year means Calendar year. January 1 – December 31. Though there is a “grace/overlap period” where you can contribute to last years IRA up to I think April 15th of current year.
As far as investments the easy “Set and forget” method is either an S&P 500, a Total Market, or a Target Date fund. All should have low expense rations (below 0.1%). Total market is the highest risk highest reward, S&P500 is less risky but more stable, target date funds automatically rebalance to less and less risk as you get closer to retirement so they’re great for setting when you’re 18 and then forggeting about for 50 years.
Then whenever you add funds make sure it’s set to buy more of the fund. Some people forget to do this and basically they get the paltry .25% interest. Make sure your contributions are being invested.
Absolutely. Get it started as soon as you can. Buy an inexpensive Index Target Date Fund.
You should try to fully fund one by the end of the year – $6,500. If at all possible, do that!
Pick a vendor (Merrill lynch, fidelity, Charles Schwab…) and open one then fund it. You could put a bit in every paycheck or all at once. The maximum (for people younger than 50) is $6500 a year, and if you earn too much, you can’t put anything in.
You’re fine right now, so try to put it in! Once the money is in the account, you can’t touch it until you’re 59.5 years old, but the growth is tax free when you get it 40 years from now. Also, it doesn’t automatically pick a stock for you. So, I’d seek some form of index fund or target date fund and invest most of the max in there.
Good luck, and you’ll be off to an INCREDIBLE start if you are able to have $13,000 +/- market changes by the time you’re 20 years old! You’ll have a whole decade of your 20s to add at least $65,000 to it and hope for growth to occur even at or below historical averages. If so, you should enter your 30’s with over $100k in retirement, and still have 30 years of growth to take advantage of. If it goes up even 7% in a year, that’s $7,000 that you wouldn’t have to pay taxes on. AMAZING, right?
I prefer a traditional IRA because your money compounds more when you can pay taxes later rather than upfront.
At age 19, I wouldn’t recommend opening any ROTH (aka post tax) accounts. IMO focus on maxing 401k first, emergency fund, and getting a HYSA as a savings acct. Wayyyyy to young for ROTH, again in my opinion there are a lot other things that you oughta be focusing on at 19. Enjoy live and spend some money (wisely) !
A Roth IRA lets you put in after-tax dollars now and you are not taxed on any gains later. So when you retire, you don’t pay tax on those capital gains when you withdraw. Also, even if the tax rate increases between now and then, you won’t be affected.
With a conventional 401k you use pre-tax dollars (so you have in effect 20%-30% more to invest, depending on your average tax rate), BUT the entire withdrawal at retirement it taxed. If you have *both* you can choose which is more advantageous to draw from based on your tax status then, which you don’t know now.
The short answer is yes. The long answer is yes, and tbh honest, the only way you will start feeling comfortable around investing is to read a book and begin slowly learning. We could tell where to go, how to open an account, and even what funds to pick, but if you don’t understand why, the likelihood of you doing it is low, and the possibility of you selling when times are tough, is high.
I recommend “I Will Teach You to Be Rich” by Ramit Sethi.
Consider Vanguard, Schwab, or Fidelity for brokerage. IMHO, Schwab has the best customer service. Also to keep in mind, for a traditional IRA, your contributions may be tax deductible if you don’t have an employer-sponsored retirement plan.
**Understand the difference between pre (trad IRA/401(k), etc) v post tax (Roth IRA, 401(k), etc) investment vehicles.** This may alter your investment/tax strategy depending upon your goals. For example, you may want to retire early, work until 55+, etcetera. These should be factored in to make the most out of your monies such as using a Roth conversion ladder, the rule of 55, rule of 72(t), working until 59.5 or longer, etcetera. It’s not necessarily about how much you make, yet more about how much you keep!
**The main overall key, IMHO, is to budget and live below your means. Invest in low-cost index funds such as an SP 500 or total stock market.** At your age, I would just put it in something like VTI or an equivalent for a few decades. If you want some intl diversification, then VXUS or an equivalent would be a fine choice to compliment. No need for bonds for 30ish years, if ever.
Not to overwhelm you but here are some links you may find helpful. Some are biased towards retiring early, however:
[https://www.etf.com/docs/IfYouCan.pdf](https://www.etf.com/docs/IfYouCan.pdf)
[https://www.madfientist.com/traditional-ira-vs-roth-ira/](https://www.madfientist.com/traditional-ira-vs-roth-ira/)
[https://www.bogleheads.org/wiki/Tax-efficient_fund_placement](https://www.bogleheads.org/wiki/Tax-efficient_fund_placement)
[https://www.kitces.com/blog/understanding-marginal-tax-rate-vs-effective-tax-rate-and-when-to-use-each/](https://www.kitces.com/blog/understanding-marginal-tax-rate-vs-effective-tax-rate-and-when-to-use-each/)
[https://www.bogleheads.org/wiki/Prioritizing_investments](https://www.bogleheads.org/wiki/Prioritizing_investments)
[https://www.madfientist.com/how-to-access-retirement-funds-early/](https://www.madfientist.com/how-to-access-retirement-funds-early/)
[https://www.financialsamurai.com/after-tax-investment-amounts-by-age-to-retire-early/](https://www.financialsamurai.com/after-tax-investment-amounts-by-age-to-retire-early/)
The only regret I have about Roth IRA is that I didn’t start sooner.
I began when I was 25. There is a reason why there is a limit on this because it is THAT good.
You don’t have to understand everything about retirement but just because there is a limit each year, you can only invest so much into it.
Long story short from a CPA, Imagine the tax free money when you retire. I don’t know about you but I plan on having a lot of money via passive income and it would suck to pay tax on my retirement money as I take them out at high tax bracket.
“Worth it” depends on if the benefits exceed the costs. Opening a Roth IRA involves no cost, so it’s just a question on if the benefits are appropriate for your financial goals.
Absolutely yes! And make sure that the money is in the fund, not just in the Roth IRA portfolio just sitting and doing nothing.
**Tax Free** Growth!!!
Let’s say you are able to put $6,500 into Roth IRA each year, by year 20, you’ll have $1.48 million. By year 30, $2.26 million, by year 40, $3 million at a modest 6% growth. All TAX FREE!
[https://www.calculator.net/investment-calculator.html](https://www.calculator.net/investment-calculator.html)?
Yes. It’s the only way to get tax deferred gains. Max it every year.
Yes. Put $6500 a year in the Roth IRA and put it in an S&P 500 fund or a target date fund for the closest 5 years to when you are going to retire
IRA is pre-tax dollars, meaning you invest money before the money is taxed. Your current tax rate is 22% unless you are married.
By contributing to the IRA, you would lower your tax rate to 12%.
Roth IRA is you invest using money that has been taxed at 22% to fund the Roth IRA. You would need to make $8100, pay 22% on that which would come out to $6500.
When you begin taking a distribution from the IRA you will be taxed.
When you begin taking a distribution from the Roth IRA you will not be taxed.
No idea on what your job or career is, but I do not think you plan on having income growth.
The best way to do it is
$6500 into an IRA, this is pre tax dollars you deduct this on your form 1040, this will lower your income into the 12% tax bracket
Then invest an additional $1200 into a taxable mutual fund of your choice from Fidelity of Vanguard.
$6500 into an IRA plus $1200 into a taxable account will mean you have more money when you begin distributions and it will last longer, even after you pay taxes on the distributions.
why? Roth IRA you are only investing $6500, the traditional IRA you are investing $6500 + $1200. $7700 is greater than $6500
A Roth IRA is just a box (in cyberspace) that you store your (electronic) money in, so that when you earn money on your invested money in the box, you never need to pay taxes on it. You can invest the money any way you want, in that box: stocks, bonds, REITs….
100%, I’ve been fortunate to max mine out every year and I will estimate 1.6 million, on top of a 401K that I unfortunately do not max out due to paying student loans off aggressively. The 401K is projected 2.8 million, so this 1.6 will be an amazing buffer in case anything catastrophic happens like having to be in elder care.
It’s worth it.
Best retirement account you can have imo. Really wish I could have / would have maxed out since 19
starting at 19 is a great way to have 7-figured by the time you are in your 50s if you put enough in each year 🙂
What do you mean “worth it”? Is saving for retirement via investments in a tax advantaged account “worth it”? Yes.
Yes. And get a job that have retirement benefits.
Absolutely, not even a question.
There’s a bunch of info here that you can ignore for the short term. Definitely do more research…. but most of this is just noise given your current situation.
Bottom line. YES!!
Max out your Roth IRA every year you can (or at least until your current financial circumstances change)
Absolutely open one and contribute what you can. I like Fidelity because if you get their credit card, you get 2% cash back that will automatically deposit into your IRA.
save 15% a year, so $7,500 for this year. so yes you can open a roth ira (i like fidelity), move $6,500 into it over the course of the year. make sure to use that money to buy a fund in your roth ira like VOO (vanguard s&p 500 fund).
Yes, a tax advantaged account is pretty good
If you save starting at this age, you can have well over $1 million by the time it’s time to retire
Highly recommend everyone do it
Eventually you may come back around to using a traditional (tax deductible) IRA, depending on your income. But if you are just starting to save the important thing is starting to save. Roth IRA is a fine place to start and you can learn more from there.
https://www.gocurrycracker.com/roth-sucks/
https://www.bogleheads.org/forum/viewtopic.php?t=377529
Personally I have a Roth IRA, and a traditional 401k. I like the diverse tax treatment.
If you put $500 per month into a Roth IRA starting now and you invest in an index fund like VTI, you’ll have around $3,500,000 at age 60. At age 60 you can pull money from the Roth IRA tax free. It’s very simple to open the account with Schwab, Vanguard or Fidelity.
No, buy a $50k car. It’ll be great
there is a reason why government limits how much you can put in per year, and it isn’t because they are looking out for you.
Yes. But please, for the love of god, make sure it automatically invests your deposits each month. So many sad stories about people that lost decades of gains because they didn’t know IRAs don’t automatically invest unless you set it up.
I highly recommend. I am 60 now and pulling some out for home repairs, etc. this $$ will help me greatly until I retire and sell my house. I recommend at some point buying stocks. I have stocks like Google and Apple and others and have made over 80% profit in my Roth. So happy I can withdraw this and owe no taxes
If you don’t have any benefits from your employment like a 401k, then yes ROTH IRA or even IRA is worth it. If you had employment 401k plan, I would have said 401k all the way. This is usually cause employers offer some kind of match, which is essentially free money as long as you contribute. Do a 1 fund s&p 500 portfolio.
Tech is the future. Do your research.
Yes, you should put money into a Roth IRA, the sooner, the better. There are many options available for investing your money in safe places where they can accumulate interest over time. In addition, don’t forget the big tech stocks: Apple, Google, Microsoft. You just need to put your money away so it can grow over a long period of time.
I would put it into a HYSA. You can get between 4-5% return right now.
I have retirement through my employer but also stack all other funds in my HYSA