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Roth IRAs are frequently lauded as an excellent long-term savings vehicle. However, there are several reasons why some people prefer to put their retirement money in other types of accounts.

If you want an immediate tax reduction on your retirement plan contributions, you should put them into a regular IRA or a 401(k). Furthermore, if you earn a lot of money, you might not be able to directly fund a Roth IRA. (Although there are ways to avoid the income limits – a Roth IRA conversion – some people may find it inconvenient.)

While Roth IRAs aren’t perfect, it’s simple to argue that they’re the greatest place to invest as much of your retirement funds as you can. Here’s why.

1. You will not be required to pay taxes on your withdrawals.

The benefit of a Roth IRA is that the withdrawals you make in retirement are tax-free. And, given that you’ll be spending those funds at a point in your life when money is tight, avoiding having to pay a portion of your income to the IRS may be a good thing.

Additionally, we don’t know if the government would gradually raise tax rates, or how much those increases will affect us. But if you utilize a Roth IRA, you won’t have to worry about that, at least not for that portion of your retirement funds.

2. Your withdrawals will have no effect on whether or not you pay Social Security taxes.

Depending on how your retirement income is distributed overall, Social Security benefits may be partially taxed at the federal level. However, not all sources of income are considered when determining whether you will owe taxes on some or all of your benefits.

Roth IRA withdrawals are not taken into account in that computation, while traditional IRA withdrawals are. As a result, putting part of your long-term assets in a Roth IRA may allow you to preserve more of your Social Security income.

3. You are not required to use all of your plan balance during the course of your lifetime.

Roth IRAs are the only tax-advantaged retirement plan that does not require savers to make required minimum distributions (RMDs). The quantity of those obligatory annual withdrawals is determined by your age, plan balance, and life expectancy, and the penalty for failing to take them is severe: 50% of any cash you were obligated to withdraw but did not.

Of course, one disadvantage of RMDs is that they effectively force you to spend down your savings over your lifetime, in addition to increasing your tax liabilities if the money was in a typical 401(k) or IRA. However, if you want to leave a considerable portion of your estate to your heirs, a Roth IRA can help you do it in a tax-efficient manner.

Author: Scott Dowdy

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