There is no reason to go into a long-winded discussion when it comes to why a young millennial like yourself should have a Roth IRA. The following two advantages Roth IRAs have for the younger generation speak for themselves:
- You get no tax deduction for your contribution, but withdrawals after age 59 are tax-free. By the time you are 59+, your income should be higher, so your tax rate is likely to be higher too. This makes the tax break you get at the end a lot more valuable than getting a tax break for your contribution. Also, the Roth may shield you from the growing list of tax and benefit penalties in the long-run as well.
- Roth IRAs are flexible. Let’s say, as a young millennial, you need cash now (to start your own business? for an emergency?). Unlike your 401(k), with a Roth IRA you can withdraw your original contributions without taxes, penalty, or jumping through hoops.
Of course, if you’re offered an employer-matched 401(k) you need to take it! But, if you’re planning a decent retirement and saving for other goals, you’ll need to save a lot more than 6% a year. The smartest thing you can do is put enough away into your 401(k) to get your employer match, then fund a Roth IRA.
So how much can you put away into a Roth IRA?
In 2015, you can contribute $5,500 per person to a Roth IRA, provided your AGI isn’t more than $116,000 for singles and heads of households or $183,000 for married couples.
If you earn too much to open a Roth IRA, you can get around that! You can open a nondeductible IRA and convert it to a Roth IRA as Congress lifted any income restrictions for Roth IRA conversions.
If you have any questions regarding Roth IRAs, please give us a call at (314) 993-4285 or e-mail us at office@hkaglobal.com
