Saving money is popular once again. While many consumers never veered from the path of sound money management, quite a few got lost along the way in the past few decades. Prior to credit cards, most of our grandparents and ancestors before that focused on saving money to prepare for any type of financial emergency. Somewhere along the line, saving became less of a priority and for some households eventually faded from financial planning altogether.
Today, more and more young people entering the workforce want to avoid the financial hardships they have seen their family and friends experience in recent years. A renewed interest in savings has been noticed and many of these early savers are paying close attention to the Roth IRA. Here we look at some of the benefits early savers can expect when opening a Roth IRA.
Savings And Investment Vehicle
No one will argue that the Roth IRA, like most other retirement plans is geared toward long term savings for retirement. This makes Roth IRAs ideal for young savers. Unlike most other savings plans, the Roth IRA allows some flexibility in when funds may be withdrawn. This means young savers who may want to tap into their retirement fund to buy a home or pay for additional education later in life, may be able to do so without risking hefty penalties associated with other accounts. This is made possible by the way in which Roth IRA contributions are taxed.
Unlike traditional IRAs or 401k accounts, contributions to the Roth IRA are taxed in the year in which the contribution was made. While this takes away from the immediate tax benefit, this allows for account owners to withdrawal contributions at any time without fear of penalty or taxation. Earning from the account must be qualified to avoid penalties, however access to contributions makes this type of account ideal for young savers who may find themselves in a position where getting their hands on the money before retirement is necessary. In addition to the flexible nature of the account, early savers will benefit by the long term growth potential when savings remain in the account until retirement.
Smart Retirement Planning
It is important for young investors to become familiar with all of the retirement accounts available to them. The Roth IRA offers considerable benefits, even beyond that of the tax benefits noted previously. If you qualify for other savings plans, it is important to compare each option and learn which will be better for your own financial situation. For some savers, the Roth IRA will be the way to go. Others may benefit more by taking advantage of employer matches or military savings plans. The key to maximizing your savings is to understand how each plan works to include the advantages and drawbacks associated with each. In some cases, savers can contribute to more than one account, thereby taking advantage of multiple savings plans to maximize their savings.