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3 (Lesser Known) Reasons a Roth IRA May Be Right for You

Retirement investment options can be daunting, especially the older you get. There may be income limits and withdrawal rules and a lot of other unique factors that must be taken into account when choosing the right investment vehicle. Here are three lesser known reasons a Roth IRA may be the right choice for you.

1. Diversification

One of the primary considerations in deciding whether to fund a Roth versus a Traditional IRA is whether you will be in a higher or lower income tax bracket when you retire. But what if you just don’t know or the tax code is different 40 years from now when you retire? The smart play is to diversify your future taxes and a Roth IRA can help you do that by ensuring you have a tax-free income source after age 59½.

2. Flexibility

So you came across a little extra money, like a bonus at work or small inheritance, and in the back of your mind you know that you should be putting more money towards retirement. But you are also worried about some big expense popping up, like your car breaking down or your foundation leaking. The beauty of the Roth IRA, unlike a traditional IRA, is that all of your contributions can be withdrawn tax-free at any time. This can serve as a huge safety net and provide you with financial flexibility in case that unexpected expense should appear.

3. Closing the Gap

Most financial plans are built on basic life assumptions like how much income you will need in retirement and what age you may no longer be around. The problem is that assumptions are essentially guesses and life doesn’t always follow accordingly. What if retirement time comes and you have more expenses than budgeted or you live to age 85 instead of the average life expectancy age of 78? Funding a Roth IRA during semi-retirement not only gives you tax diversification and flexibility, it also alleviates a lot of the challenges that can be associated with owning a Traditional IRA at this phase in your life. First, you can still fund a Roth IRA after age 70½ (assuming you are still working) and the growth is still tax-free (assuming the account has been open at least 5 years). With a traditional IRA, you can’t fund it past age 70½ and the government actually requires you to take distributions each year, whether you want to or not. The older you get, the more concerned you may be with outliving your income. If you are still working, investing in a Roth IRA after age 70½ can really help close that gap when you outlive the assumed age upon which your entire financial plan was probably built.

The options are plentiful and the choices are hard. Each situation is different from the next, so while these Roth tips might be right for some people, there may be a better strategy for you. Our CommunityAmerica Financial Advisors are here to help you develop a customized plan for your personal situation. Schedule a complimentary, no-obligation appointment today. 

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