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Why Everyone Needs a Roth IRA
When I opened my Roth IRA a few years ago, I knew it was a good financial decision. I put the proceeds from the sale of my house in my account, and it’s grown from there. You can save up to $5,500 per year into a Roth IRA, and if you’re 60 or older you can save $6,000 per year in a Roth. Another benefit of a Roth IRA is that earnings and withdrawals in retirement may be made tax-free. With a regular IRA, taxes are owed on withdrawals. Roth IRAs offer more flexibility, and you may make withdrawals for things like the purchase of a home.
5 Reasons You Need a Roth IRA
- It’s not wise to count on Social Security as your main source of income in retirement. Social Security is currently funded until 2035, but it’s always a good idea to have a back-up plan and not rely on the government to support you in retirement. Which is why you need to open a Roth IRA.
- Money that you put in a Roth IRA grows tax free, and withdrawals may be made tax free.
- There are lots of low cost options out there. Vanguard and Fidelity are two examples. You can even choose a target fund, e.g., I have a target fund for my expected retirement date of 2035. All of the funds are picked for you in this fund, and the funds invested are more conservative as you grow closer to retirement age, in order to maintain your invested funds and reduce risk. It’s a win-win.
- You can set up monthly automatic withdrawals of $25 to start with, if you’re on a tight budget, but check with the fund for contribution minimums required.
- You can start growing your net worth. This is especially important, especially if you’re not a homeowner yet (or don’t want to be). Don’t be one of those 33% of Americans who has NOTHING saved for retirement. Be smart, start early (in your 20’s, in your first job), and you will have a nice nest egg saved by the time you’re ready to retire!