When it comes to investing for retirement, there are several types of accounts you can choose from. But if you’re young, experts say a Roth option can be especially smart to start with.
“Typically, the younger you are, the more a Roth makes sense,” says Patrick Huey, certified financial planner and owner of Victory Independent Planning in Portland, Oregon.
Unlike a 401(k) or traditional individual retirement account, which are funded with pre-tax dollars, Roth 401(k)s and Roth IRAs are funded with money that’s already been taxed. In exchange, your investments grow tax-free, and once you reach age 59½, you won’t owe taxes or penalties on qualified withdrawals.
Though you can’t predict the future exactly, Huey says, “you have to look at the way things typically progress and plan accordingly.” As you get older, you tend to move into higher-paying roles, and thus, higher tax brackets.
A Roth account generally gives younger investors the ability to avoid those higher taxes in the future by paying taxes now while they’re in a lower bracket, Huey says.
