Hopefully everyone knows at this point in time that saving for retirement is key. One of those amazing tools is a Roth IRA. However, many people that qualify are still not investing in one! So, here are five possible reasons why someone would avoid investing in a Roth IRA. Maybe they apply to you:
1. You Plan to be Poorer in Retirement:
One of the biggest benefits of a Roth IRA is that you contribute money to it that has already been taxed. So, if you plan on being in a higher tax rate at retirement, a Roth IRA is a great vehicle. However, there may be some College Investors out there that plan on having less income in retirement, then a Roth isn’t for you since your tax rate may be lower. Keep in mind, however, that tax rates today are at historical lows. For most investors coming out of college, we will most certainly face higher tax rates in retirement, even at the same income levels.
2. You Want to Lock Your Principal In:
Another great aspect of the Roth IRA is that you always have access to your contributions penalty free (you just can’t touch your earning without an early withdrawal penalty before 59 1/2) . However, this may give some investors an incentive to touch their IRAs. If you fall into this area, keep to your 401(k)s, and face the high penalties for trying to get at your money!
3. You Want Your Future Children To Pay Large Tax Bills:
With a Roth IRA, if you leave your children or grandchildren as your beneficiary, they are able to have tax-free distributions from the account, just as you would have been able to. However, maybe you are angry at them and want them to pay taxes. If that is the case, keep to your standard brokerage account and smile from the afterlife as they cut Uncle Sam a check in April! Now that I’m learning how to file tax return online I’m no longer scared to handle most tax issues.
4. You Hate Investment Options:
For some people, choices are overwhelming. With a 401(k), you usually only get a defined set of choices to invest in. However, with a Roth IRA, you can invest in hundreds of different vehicles. This allows for great flexibility. If this isn’t your thing, stay away from a Roth IRA.
5. You Plan on Giving it all Away:
If you plan on donating your IRA to charity, then a Roth IRA isn’t for you, as the charity will have to pay taxes. The best way to go is to have a traditional IRA for charity. If you fall into the category, The College Investor is starting a personal charity, and I urge you to contact me using the link at the top of the page!