If you're saving for retirement in a 401(k) or other workplace plan, kudos to you. But don't stop there.
Because of their benefits, consider investing in a Roth IRA, too.
Here are three big reasons to do so:
1. Tax-free growth. One advantage of Roths is your money grows tax-free. You put money in after you've paid taxes on it, and no other taxes are levied on the account (assuming you don't withdraw your earnings early). Your money then grows tax free, which frees you from worrying about how your years of investment growth will be hit with taxes in retirement — a perk that 401(k)s and IRAs cannot provide.
"The Roth IRA removes the uncertainty of what future taxes can do to your retirement account," said Ed Slott, a certified public accountant and founder of IRAHelp.com.
When you retire, your Roth earnings will be exempt from taxes, while your traditional 401(k) earnings won't be.
2. Flexibility as you save. Another big benefit of Roths is you can withdraw your contributions anytime, without taxes or penalties. If you pull out investment earnings early, however, you'll owe taxes and penalties on that money.
In fact, a Roth IRA can act as a backup emergency fund. For immediate emergencies, you want money in a savings account, not the stock market. But in the event of a long-term job loss, for example, having a Roth can be a blessing.
