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The Power of a Roth IRA for Young Professionals

Photo of author, Michael O'Brien.
Michael O'Brien
Client Coordinator

As a young professional, we can easily get caught up in advancing our career, financial independence, and enjoying the present moment. However, it's just as important to think about our long-term goals and financial security. One effective way to invest in the future is by opening a Roth Individual Retirement Account (IRA). Roth IRAs offer many benefits that can help build wealth and achieve long-term financial goals. Let's further explore why a Roth IRA is potentially a good investment tool for young professionals.

1. Tax-Free Growth and Withdrawals

One of the primary advantages of a Roth IRA is it grows tax-free. Roth IRAs are made with after-tax dollars, meaning you pay taxes on the funds you contribute. This differs from a Traditional IRA which lowers taxable income in the year the contributions are made. For the Roth IRA, you won't receive a tax deduction for your contributions, but qualified withdrawals made after age 59 ½ are tax-free. For young professionals, the decades of potential tax-free growth and subsequent tax-free withdrawals can significantly increase your retirement savings.

2. Flexibility — No Required Minimum Distributions

Roth IRAs have no required minimum distributions (RMDs), allowing your investments to grow for as long as you desire. This differs from a traditional IRA where you are required to start taking distributions. Under current law, traditional IRA owners must start withdrawals at age 73.

3. Potential for Higher Tax Bracket

As a young professional, your current income is likely lower now than it will be in the future as your career progresses. By contributing to a Roth IRA now, you are likely paying taxes at lower rates versus later in your career when you’re earning more and in a higher tax bracket. By locking in today's tax rate, you shield your retirement savings from future tax increases, maximizing your overall savings.

4. Some Employer Sponsor Plans offer Roth 401(k) Options

More employers are offering a Roth 401(k) option in their employer-sponsored retirement plans, which allows participants to enjoy the same benefits of a Roth IRA explained above. Check with your employer’s HR department or plan sponsor record keeper to see if a Roth option is available with your employer’s plan.

Although you are at the beginning of your professional career, the decisions you make today can have a significant impact on your financial future. Now is the time to take action to ensure you’re on the right track toward securing your retirement and maximizing your wealth. The Roth IRA's tax-free growth, withdrawals, and flexibility, as well as the potential you may be in a higher tax bracket in the future, make it an ideal investment vehicle for young professionals.

If you're interested in learning more about how a Roth IRA could benefit you, contact a McKinley Carter advisor for a complimentary discussion about your situation. Remember: It is never too early to start planning for retirement.

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