Why Millennials Need to Invest in Roth IRAs

The statistics show that Millennials are not investing nearly enough to be ready for retirement when the time comes. Roth IRAs offer millennial investors tax-free investment growth for years, and the requirements for tax-free and penalty-free withdrawals are relatively easy to meet. Millennial investors will benefit from investing in Roth IRAs now, as the rewards of these investments are almost always superior to traditional IRAs.

Tax on the Front End

One benefit of Roth IRAs is that it is taxed on the front end of the investment, rather than when you withdraw it. Millennials closer to the start of their career than retirement can bank on earning more later in life than they do now. The higher your income, the higher your tax rate. So, it makes sense to pay the tax on your investment now when the amount you have to fork over to Uncle Sam is less than it will be later. Also, there is an income limit to your eligibility to contribute to a Roth IRA. If all goes well, at some point in your life, you’ll make too much money to take advantage of a Roth.

Flexibility in Withdrawal Options

In a traditional IRA, you’ll pay a 10% early withdrawal penalty if you take money out before age 59. With a Roth IRA, if you meet certain basic requirements, such as having opened the Roth IRA five years ago or more, you can withdraw early with no penalty. This means your Roth IRA not only functions as a retirement investment, but as a savings vehicle for going back to school, or paying for some unreimbursed medical expenses.

Saving for a First Home

Not only can you withdraw money penalty-free, but you may be able to withdraw from the Roth IRA without paying taxes on the withdrawal if you use it for certain expenses. One of the biggest benefits is using the money to buy a home. If you withdraw from a Roth IRA to buy or rebuild your first home, you can take up to $10,000 from the investment without paying any penalties or taxes. Money from your Roth can also be withdrawn tax-free if you need it because you suffered a disability, or the money is paid out after your death.

Taking advantage of the benefits of Roth IRAs is a great way to beef-up your retirement savings, while leaving you the flexibility for other major expenses along the way.

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