Saving for retirement may seem intimidating and daunting.
Time and compound interest work together to grow even modest contributions into a healthy nest egg over time. A Roth IRA might make sense if you anticipate being in a higher tax bracket in retirement than what they currently are.
1. Compound interest
By investing in a Roth IRA that earns an annual return of 6%, over 10 years you could end up with almost $92,000 saved thanks to compound interest, which allows your earnings to compound year by year and accelerate savings growth.
Investment options that offer better returns could include online brokers or robo-advisors with lower fees and NerdWallet’s ratings of these investments take into account over 15 factors including investment options, fees and customer support services.
Though no guarantee can be given regarding how your investments will perform, Vanguard has reported that portfolios consisting of 90% stocks and 10% bonds have historically generated returns of over 7% over time. Of course, the rate at which they grow depends on a variety of factors such as your timeline for retirement and tolerance for risk.
2. Tax-free withdrawals
Roth IRA funds offer the added advantage of tax-free withdrawals when withdrawing them, making this account especially appealing if taxes may rise in the future. By contrast, withdrawals from traditional IRA accounts must be taxed as income and may come with early withdrawal penalties.
Roth IRA accounts don’t pay out interest or dividends, yet their value has typically outshone investments like bank certificates of deposit, interest-earning bonds or other forms of income-generating assets.
Roth IRAs provide another benefit that can keep retirement savings intact for longer, which may come in particularly handy should Congress decide to make unfavorable tax law changes in the near future.
3. No minimum age
Start investing early! Earlier investments may allow more for compound interest to make an impactful difference with compound interest accelerating returns over time. But even if you’re near retirement age, opening a Roth can still offer tax-free withdrawals during retirement years.
Some individuals can even benefit from opening a Roth account in the name of their child, as many parents worry that their offspring spend too much money or fail to save enough for retirement. A separate account allows parents and guardians to set aside savings that could later be put towards things such as purchasing their first home or paying tuition fees for college tuition costs.
Roth IRAs offer some distinct advantages over traditional retirement accounts: no minimum age to open one and income-related limits that determine your contribution limits (if your contributions surpass this amount, eligibility is reduced accordingly.). In 2024, contributions are limited between $146,000-$161,000. For married couples filing jointly filing joint taxes filing jointly filing jointly the contribution limit is $230,000).
4. Eligibility
Nearly anyone earning earned income can open and contribute to a Roth IRA, including salaries, wages, commissions, tips and bonuses, tax-deductible employer contributions to a workplace retirement plan and certain other forms of compensation (excluding self-employment income or military pay which is exempted), but not including self-employment income or tax-free alimony payments. As of 2025 the IRS contribution limits for individuals filing alone are $7,000 while for married couples filing jointly it stands at $8,000.
Some financial experts advise using a Roth IRA when anticipating higher taxes in retirement due to rising income or changes to tax laws. A Roth IRA allows you to pay taxes now at lower rates and withdraw them later without incurring penalties; just remember that Congress could alter tax rules at any time!
