Why the Roth IRA?

The Roth IRA is a retirement savings vehicle that was started through the Taxpayers Relief Act in 1997 and named due to the efforts of its main proponent, Senator William Roth.

The power of the Roth IRA is not in what it can do for you today, but in the impact it can potentially have on your retirement dollars in the future, as in, when you’re actually retired.

When you deposit money into your Roth IRA, you don’t receive a tax deduction the year you contribute the retirement savings, which is unlike the Traditional IRA or your standard 401k plan offered through work. It’s what’s called an after-tax contribution. So after you receive your paycheck from work, you buy groceries, clothes, and yes, your Roth IRA. Money goes into the plan after you receive your paycheck – already taxed. One of the benefits of the Roth IRA is that it grows tax-deferred from this point forward, and withdrawals from the account may be tax free, as long as they are considered qualified. Limitations and restrictions may apply.

Let’s make this practical with some hypothetical numbers. Let’s assume at age 25 you begin saving $400 each month for retirement, which is gaining an average annual return of 8%, and you continue this for 40 years. At age 65, you’ve contributed a total of $192,000 over this time, but your nest egg has grown to $1,396,000! For some, the tax savings today makes the most sense, but for those that can afford the after-tax contribution and allow time for their money to potentially grow; a Roth IRA may be the right strategy for retirement.

What makes the most sense for you at this stage in your retirement journey?

Julia Carlson is a registered Principal with, and securities are offered through, LPL Financial. Member FINRA/SIPC.

Information in this material is not intended as tax or legal advice. Please consult legal or tax professionals for specific information regarding your individual situation.

Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual.

Withdrawals from Roth IRAs prior to age 59 ½ or prior to the account being opened for 5 years, whichever is later, may result in a 10% IRS penalty tax. Future tax laws can change at any time and may impact the benefits of Roth IRAs. Their tax treatment may change.

This is a hypothetical example and is not representative of any specific situation. Your results will vary. The hypothetical rates of return used do not reflect the deduction of fees and charges inherent to investing.