Most people who contribute to an IRA choose this type of account. Is it right for you?

If you’re saving for retirement, you have several options. Best of all, if your employer has a company match that matches your contributions to its 401(k) plan, you’ll need to invest enough in that account to get the full match. There is little reason to give up this free money.

Once you do that, or if your company doesn’t do a 401(k) match, putting the money into an IRA can be a good option. You can open an IRA at any brokerage firm and get more investment choices than a typical 401(k) offering while still receiving retirement tax breaks.

There are actually several different types of IRAs to choose from, but one is much more popular than the other. Find out why and how to find out if it’s right for you.

Most IRA contributions go into this type of account.

According to Fidelity, the majority of IRA contributions go to Roth IRAs rather than traditional IRAs. In fact, 61.2% of all IRA contributions go to Roth IRAs.

A Roth IRA is a tax-advantaged account that lets you invest for retirement. However, unlike a 401(k), you do not take a deduction for the amount you invest during the year. Instead, you donate after-tax dollars. But you can withdraw the money when you retire. without You pay taxes on it. Roth 401(K) accounts are also available, although not all employers offer them.

A Roth IRA is an alternative to a traditional IRA. Traditional IRAs are more similar to standard Traditional 401(k) accounts. You can get a tax deduction for the amount you invest during the year. However, once you retire, you will be taxed on your withdrawals.

Fidelity data shows more people are choosing to delay their tax breaks by claiming them later in life as seniors rather than now. But is that a good idea?

Is a Roth IRA the right choice for you?

Roth IRAs have several key advantages over traditional IRAs, which may make them the right choice for many people.

Take advantage of low tax benefits now

First, if you expect to be in a higher tax bracket in retirement than you are now, a Roth IRA is best for you. It’s a good idea to claim your tax savings if you end up being taxed at a higher rate later. If your income increases over time, or if the government takes action to increase tax rates in the future, you may be subject to a higher tax rate in retirement than you are now. Historical standards.

More diversification

If you’re already contributing to a traditional 401(k), a Roth IRA can help you further diversify your retirement savings. Because your 401(k) gets tax breaks now rather than later, if you choose a Roth IRA, you have an account that offers tax savings at different times. This allows you to hedge your bets because it’s really hard to know whether your tax savings will increase now or in the future.

No RMDs

There is no need to withdraw money from this account at any given time. In contrast, both traditional IRAs and 401(k) accounts are subject to rules requiring required minimum distributions. Basically you have Based on IRS tables, you will be penalized if you don’t take the money out. So, if you don’t want the government to take you out of your account, a Roth makes more sense.

Avoid Social Security Tax

Investing in a Roth can also help you avoid taxes on Social Security. The Social Security Administration calculates “temporary” income by adding up half of your Social Security retirement benefits, some non-taxable income, such as MUNI bond interest, and all taxable income. If your provisional income is $25,000 for a single filer or $32,000 for a married couple filing jointly, you will receive a federal tax bill for your unemployment benefits. However, Roth distributions are not included, so you can take home more money without having to pay taxes on your benefits.

For all these reasons, it’s clear why Roth IRAs are so popular. When investing for retirement, you should seriously consider investing your money in one after maxing out your 401(k) match.

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