Retirement savings accounts are used for money you don’t intend to spend until after you reach age 59 ½. It is a type of retirement savings account. Unlike Traditional Ones that only allow pre-tax contributions (deposits), Roth IRAs only allow contributions from the money that has already been taxed. That means if after paying your bills for the month you have $200 leftover, you can put some of that into a Roth IRA and save the rest elsewhere or spend it on yourself.
One of the biggest advantages is that the money grows tax-free. In other words, when your money starts making money, the gains are yours to keep. Another perk is that you can withdraw your Roth IRA contributions at any time without tax or a penalty, provided you don’t take your withdrawals too early.
Take a look at your budget (you do have one, right?) and see how much you can comfortably afford to save in a Roth IRA. Even if you can contribute $50 per month, that’s $600 per year of money growing tax-free. In just a few years you are on your way to a healthy retirement savings account.
To open one, visit your local bank or credit union or search online. Most financial institutions that offer Roth IRA plans allow you to choose between a savings account that allows you to deposit year-round (up to the contribution limit) and a Certificate of Deposit that typically pays a higher interest rate in exchange for a fixed term. Most certificate accounts do not allow you to add or withdraw your money until the end of the term.
A Roth IRA is an easy way to save for your future because you can save when you want and how much you want. The earlier you start, the more time your money will have to grow. If you are able to save money you’ll be glad you did!
Tips for starting one:
- Take a look at your budget and determine the smallest amount you can contribute affordably.
- Choose a Roth IRA savings account and contribute biweekly or monthly, as opposed to annually. This will make it easier to budget your Roth IRA contribution.
- Ask your financial institution to withdraw the money automatically from your checking account and deposit to your Roth IRA. That will keep you from spending the money on something else.