The Bible encourages us to save. Proverbs 21:20 says, “The wise man [and woman] saves for the future, the foolish one spends whatever he gets” (TLB).
Our country’s most popular retirement options are the 401(k), traditional IRA and Roth IRA. I recommend contributing to a 401(k) up to the amount of your employer’s match because it is free money, but not one penny more because of the five advantages of the Roth IRA.
- Although contributions to a Roth are not tax deductible, it grows tax free, and after age 59½, anything you take out of it is tax free. This is a huge benefit when you are in retirement!
- If you are married, each year you and your spouse can both contribute $6,000 of earned income to your individual Roths, regardless of who earned the money. The amount you can contribute annually is increased to $7,000 once you reach age 50.
- If you are experiencing a financial emergency, you can take out what you’ve contributed to a Roth penalty free and income-tax free.
- Unlike a 401(k) or traditional IRA, when you reach age 70½, you are not subject to the taxable Required Minimum Distribution (RMD). In other words, you can choose to leave the assets in your Roth where they grow tax free.
- A Roth generally has the most favorable tax treatment when you pass your estate to your heirs.
The good news is that it is easy to open a Roth IRA. Most banks and online brokers can help you.
Warmly in Christ,