Personal finance

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For some young adults, retirement is so far away that it can feel absurd to put part of their income in an account that they can’t tap for decades.

“They want to invest but can’t envision not being able to touch it until age 59½,” said Winnie Sun, co-founder and managing director of Sun Group Wealth Partners in Irvine, California. That’s typically the age when you can begin to take distributions from various retirement accounts without possibly facing a 10% early withdrawal tax penalty.

However, a Roth account is a bit different. Because contributions are made after-tax — vs. pretax as with traditional individual retirement accounts or 401(k) plans — you can always access the money you contributed without penalty, no matter your age. Any gains in the account, however, may be subject to taxes and penalties if withdrawn before age 59½ unless you meet an exception.

Sun, who is a member of CNBC’s Financial Advisor Council, views a Roth IRA as a dual-purpose account because it allows the investor to have an emergency fund, as well.

“They can use the Roth IRA to save for retirement, but also in case of emergency, they could take the money out,” she said.

“The fact that a Roth gives you liquidity on your contribution amount makes [access] a non-issue,” Sun said. “And I’d say 99% of my clients have never needed to take from their Roth IRA … they take a lot of pride in having it.”

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As long as your income qualifies you, you can contribute up to $6,500 to your Roth IRA this year. Anyone age 50 or older is allowed a $1,000 “catchup” contribution on top of that.

The income cap — based on your modified adjusted gross income — for making the full contribution allowed in 2023 is $138,000 for single taxpayers and $218,000 for couples filing joint tax returns. Above those amounts, the contribution amount is reduced, and it phases out entirely at income of $153,000 and $228,000, respectively.

And once you reach age 59½, you can take as much as you want from the account, including the gains accumulated, tax-free and penalty-free, as long as you’ve had the account for at least five years.

It’s also worth noting that Roth IRAs do not come with required minimum distributions, or RMDs, which are withdrawals that must be made from qualifying retirement accounts at age 73. And, if you pass on a Roth IRA at death, your beneficiary gets to continue those tax-free withdrawals, although they may get only 10 years to deplete the account.

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