One of the best ways to save for retirement is with a Roth IRA. There's no age limit for opening a Roth IRA, but there are income and contribution limits that investors should be aware of before funding one. Let's look at the pros and cons. What makes a Roth IRA so attractive to investors is the potential tax savings.
If you think you'll be in a higher tax bracket when you retire than you are now, a Roth IRA may be more beneficial than other retirement accounts, such as a traditional IRA. The reason is that you've already paid taxes on your contributions, so your higher tax bracket won't result in a high tax bill when the time comes to enjoy your hard-earned money. Roth IRAs allow you to withdraw money tax-free after retirement, while traditional IRAs offer you pre-tax relief. If you don't name a beneficiary, your spouse (if he is your primary beneficiary) can choose to inherit your Roth IRA or transfer it to a Roth IRA in your name.
Even people with high incomes who can't directly fund a Roth IRA can use this strategy, also known as a clandestine Roth IRA. The advantage of a Roth IRA is that your retirement withdrawals are tax-free because you already paid taxes on the money before depositing it in your IRA. The distribution rules of a Roth IRA can also help you if you intend to leave your IRA to your heirs.