What One Essential Account Do You Need For Retirement Savings?

There’s always a catch when I mention Roth IRAs. Not everyone can open one, but if you can, it’s a must-have account.

Roths come in two flavors: The Individual Retirement Account (IRA) version you can set up yourself or the Roth 401(k) account offered by an employer, which could also be you if you’re self employed or run a small business.

Benefits of Roth accounts are clear and useful. While you’ll pay taxes on contributions, you won’t pay taxes on withdrawals, which is the opposite of defined-contribution plans where you get a federal tax write-off for money you put in. Another catch, sorry: You need to keep money in your Roth for at least five years and be at least 59 1/2 to qualify for the tax-free withdrawal.

Can you contribute to a Roth IRA? Here’s the rule: If you make more than $228,000 in 2023 and are married filing jointly, you can’t. The limit for single, head of household and married/filing separately is $153,000 in income.

Do you fall within the Roth green zone for contributions? The upside is that you can withdraw the money tax-free any time after age 59 1/2 for any purpose, provided, again, that the funds you withdraw have been in the account for at least 5 years.

If you qualify, the maximum contribution is $6,500 annually — $7,500 if you’re 50 or older. For anyone who falls within the IRS income ranges, this is a no-brainer to supplement retirement savings.

You can open an account with nearly any financial institution, although I recommend a mutual fund group with no-commission, ultra-low fee exchange-traded or mutual funds.

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