Roth IRAs are wonderful investment vehicles for all people who meet their requirements as listed below:
- Single filers: Up to $110,000 (to qualify for a full contribution); $110,000–$125,000 (to be eligible for a partial contribution)
- Joint filers: Up to $173,000 (to qualify for a full contribution); $173,000–$183,000 (to be eligible for a partial contribution)
Perks for All: The fact that any withdrawals in retirement are tax exempt is a wonderful perk. Also, the fact that there are no required withdrawals during retirement, as there are with a Traditional IRA and 401K, is beneficial as well. In addition to these perks Roth IRAs hold additional benefits for 20 somethings.
Tax Bracket Advantage: For young professionals just starting out their salary is as low as it ever will be. In most cases 20 somethings are in the lowest tax bracket they will be in during their entire career. With this being said it makes sense for them to take the tax hit up front as opposed to using a tax deferred account (401K/Traditional IRA). With the current economic outlook, I believe that income tax rates will only go up from today and could be dramatically higher 40 years from now. For this reason young professionals should pay the tax man now to ensure future savings when they hit retirement.
Combined Retirement/Emergency Savings: Most young professionals don't have the ability to save for retirement, emergencies and big ticket items simultaneously. That is why the fact that all contributions (not interest or returns) to a Roth IRA can be taken out at any time without penalty is so crucial for a 20 something. This means that in the event your car breaks down or you have an unexpected medical emergency the money you have saved can be tapped without penalty. I believe that all young professionals should use Roth IRAs for rainy day funds.
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