With so many choices for tax-advantaged retirement accounts, identifying the cream of the crop can be even more challenging than choosing the best picture at the Oscars from an array of awe-inspiring movies.
But when considering all the advantages each account can provide to retirees, there's one clear winner that stands out from the crowd and definitely deserves your investment dollars.
Drumroll please, that account is...
Before I explain why the Roth IRA takes the coveted title of best beginner retirement account, let's set the stage with a little background.
The Roth IRA is a retirement savings account you invest in with after tax dollars. Your tax savings comes later, when you're allowed to make tax-free withdrawals as a retiree. This sets it apart from competitor accounts such as the 401(k) and traditional IRA, both of which you contribute to with pre-tax funds but which come with taxable withdrawals.
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You can contribute up to $6,000 to a Roth IRA in 2021, or up to $7,000 if you are 50 or over and eligible for catch-up contributions. This is an aggregate or combined limit with a traditional IRA. While it's lower than the limit for a 401(k), it's still a hefty amount of money that can help set you up for a secure retirement.
The Roth IRA beat out the competitors in a tough match for the title of best beginner retirement account for a few key reasons. Here are some of the reasons it can be a better place for retirement savings than either a 401(k) or an IRA.
And while a 401(k) puts up a good fight in the quest to be declared the best retirement account because of the convenience that comes from investing with an employer-provided account, the 401(k) is also inferior to a Roth (or traditional) IRA in a few other ways:
Now there is one caveat to consider, though, and that's the 401(k) match. If your employer matches 401(k) contributions, you'll want to contribute enough to your 401(k) to get this free money before you invest in a Roth IRA. After all, while a Roth IRA has a whole lot of perks that enabled it to earn the coveted best account award, those perks don't outweigh the benefits of free investment dollars.
Of course, once you've maxed out your employer match (or if you don't get an employer match), the Roth IRA may be the clear choice.
The good news is, you don't have to pick and chose. Just as you can see all the Best Picture nominees and not just the winning movie, you can invest money in all these different tax-advantaged accounts and cover all your bases.
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