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Why Should I Consider a Roth IRA?

Why Should I Consider a Roth IRA?

February 07, 2023

When it comes to building wealth, a Roth IRA is one of the most powerful tools that everyone should take
advantage of if you’re able to. A Roth IRA is a special, taxed-advantaged individual retirement account where
you contribute after-tax dollars that grow tax-free indefinitely.  Here are 4 benefits to a Roth IRA:

1. Tax-Free Growth
The biggest benefit of a Roth IRA is tax-free growth. Since you make after-tax contributions, the money in your
account will grow tax-free. This gives you tremendous wealth-building power to create tax-free income during your retirement.

Let’s use an example: If you start contributing to a Roth IRA at age 25 and invest $6,000 per year with an
average return of 7%, by the time you reach 65, your account will be worth $1,197,811, completely tax-free.  NOTE: This is a hypothetical situation; actual results differ among each investor depending on the risk tolerance, time horizon and funds invested in.

2. Contribution Withdrawals are Tax and Penalty Free
Unlike traditional IRAs or your 401(k), you can withdraw your contributions from a Roth IRA at any time without paying
additional taxes or fees, regardless of your age or how long the funds have been in your account.  However, this only applies to the amount you’ve contributed, not the growth.

Let’s say you open a Roth IRA and contribute $4,000; a year later, the value of your account has grown to $5,000.
You can withdraw any amount up to the $4,000 you contributed tax and penalty-free. But the $1,000 worth
of growth cannot be withdrawn.


3. Versatile and Liquidity
One of the most underrated benefits of the Roth IRA is the incredible versatility of this account. Since you
can withdraw your contributions tax and penalty-free whenever you need to, this allows you to not only use
it for retirement but a multitude of purposes as well, all while fighting inflation and continuing to grow your
assets. Here’s a few ways you can use your Roth IRA for something other than retirement:
• Saving for a house down payment
• Holding your emergency funds
• Saving for a child or grandchild’s education

4. No Required Minimum Distributions (RMDs)
Another difference between Roth and Traditional IRAs is that you don’t have to start taking RMDs when
you turn 73. This makes Roth IRAs way more advantageous for creating generational wealth and
transferring your heirs because all the money you’ve accumulated in your Roth IRA will continue
compounding tax-free until you die.

To learn more about how a Roth IRA may work for your financial plan, schedule a Discovery Call with one our team members today!

***NOTE: The examples used are hypothetical situations; actual results differ among each investor depending on the risk tolerance, time horizon, the market and funds you're invested in.  Consult with your