6 advantages of Roth IRAs
Reason No. 1: You get tax-free income in retirement
With Roth IRAs, savers get a tax-free stream of income in retirement. And it's not just the contributions that come out tax-free. Uncle Sam doesn't lay a finger on any of the earnings. It can be a pretty sweet deal when you're talking about decades of compounding.
The only catch is that you pay income tax on your contributions upfront.
Unlike the traditional IRA, which gives investors a tax deduction for the year the contribution is made, the Roth version lets savers contribute after-tax money today and withdraw principal and earnings tax-free at retirement.
"For individuals looking for tax diversification in retirement, the Roth IRA is one of the few buckets they can create that ensures that they have a stream of tax-free income in retirement," says Ken Hevert, vice president of personal and small business retirement products at Fidelity Investments.