A Roth IRA is a retirement account with money contributed after taxes rather than money contributed pre-taxes like traditional IRA and 401k accounts. Because the taxes are paid before the money goes into the account, taxes are not due upon withdrawal. This can be a great benefit to this who are currently in a lower tax bracket than they expect to be in when they retire. Those in a lower tax bracket today don’t reap as big of a benefit in putting pre-tax money toward retirement as those who are in a higher bracket.
One major benefit of a Roth IRA versus a traditional IRA or 401K is the flexibility. Both 401k and IRAs have minimum annual distributions (meaning you have to take out a certain amount of money each year after retirement, otherwise you have to pay a penalty). Roth IRAs do not have have a required distribution so you can leave money in there or take it out as you please.
Having a Roth IRA also adds diversification to your portfolio. Financial experts often advise that their clients have both pre-tax and Roth accounts. This set up allows retirees to have more control over their income, when and how it is taxed, depending on how things go for them financially in any certain year.
A Roth IRA can also be an effective Estate Planning tool since you can leave your money in a Roth IRA as long as you live (no minimum required annual distribution). Your children and grandchildren may even be able to receive tax-free distributions after your death.
All in all, if you don’t have one yet, talk with your finical planner and
take a look at how a Roth IRA could benefit your retirement portfolio. You may be pleasantly surprised.