ABCs of Roth IRAs

Why you should consider a Roth IRA

Whether the balance in your retirement accounts is empty or you’re trying to rev up your savings, consider a Roth IRA. This type of individual retirement account will grant you access to a broader array of investments that often have lower fees than employer-sponsored plans. And this is the perfect time. Even with 2017 in the rearview mirror, you have until April 17 to contribute to these IRAs for that tax year.

Here are a few tips:

1 Get to know the Roth

These accounts offer valuable tax advantages. You pay taxes upfront but the investment grows tax-free and there’s no income tax on withdrawals during retirement. In a traditional IRA, you don’t pay taxes at first but face them later, when you take a distribution.

Generally speaking, if you’re currently in a low tax bracket or early stages of your career, consider a Roth IRA because your tax rate will likely be higher come retirement.

2 Set up an account

Setting up a Roth IRA takes a matter of minutes and is available through most financial investment firms.

Look for providers with low account minimums, fees and fund minimums. And make sure it’s set up with the type of customer service and educational resources you desire.

3 Envision your future

It can be difficult to prioritize far-off goals, but oh so important. Experts recommend saving up to 15% of your pretax income each year for retirement. And you’ll probably need to save more than what’s allowable in an employer-sponsored plan (a maximum of $18,500 for workers under the age of 50 for tax year 2018).

Use a retirement calculator to check whether you’re on track.

4 Know your limits

You can contribute up to $5,500 in a Roth IRA this year, but don’t despair if you can’t max it out this time.

Set up regular contributions for what you can afford. Even a few hundred dollars invested can balloon to several thousand dollars over the course of a decade or two.

When in doubt, be prudent: Don’t try to max out an IRA if you’re racking up high-interest debt in the meantime or don’t have enough to cover monthly expenses.