'The single greatest account for Americans to own': One expert says this retirement vehicle tops all others. But are you ready to pay the price?

Roth IRA superpowers

Research by the Investment Company Institute showed that less than a quarter of U.S. households owned a Roth IRA in mid-2023 — meaning a lot of folks are missing out.

Roth IRAs are especially powerful because their tax-free withdrawal feature covers both contributions and earnings, provided certain conditions are met such as reaching age 59½ and holding the account for at least five years.

And unlike traditional IRAs, Roth IRAs don’t impose required minimum distributions (RMDs) during the account holder's lifetime, allowing for greater control over retirement withdrawals and potential tax planning opportunities. Additionally, contributions to Roth IRAs can be withdrawn penalty-free at any time, which could help individuals seeking both retirement security and financial flexibility.

Roth IRAs also offer the potential for long-term growth, as investments within the account can compound over time without the drag of annual taxation on gains. This tax-free growth can significantly enhance retirement savings, especially for individuals with longer investment horizons.

But there are options, whether Slott likes them or not.

Discover how a simple decision today could lead to an extra $1.3 million in retirement

Learn how you can set yourself up for a more prosperous future by exploring why so many people who work with financial advisors retire with more wealth.

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Roth alternatives

Traditional IRAs operate similarly to Roth IRAs in terms of investment options and potential returns but differ in their tax treatment. Contributions to traditional IRAs are typically tax-deductible, reducing taxable income in the year of contribution, but withdrawals during retirement are subject to income tax. This structure can benefit individuals in higher tax brackets who anticipate being in a lower tax bracket during retirement.

Employer-sponsored retirement plans such as 401(k)s and 403(b)s often feature employer-matching contributions and higher contribution limits compared to Roth IRAs. In 2024, individuals under the age of 50 can contribute up to $23,000 annually to their 401(k) accounts, while those aged 50 and older can make catch-up contributions of an additional $7,500. The annual contribution limit for Roth IRAs is $7,000 for individuals under 50 and $8,000 for those aged 50 and older.

Remember, you can stack retirement portfolios with employer-sponsored 401(k) plans and Roth IRAs. While Slott might scoff at the tax consequence of the 401(k), the employer match can help blunt the tax bill. Holding a tax-free Roth IRA as a secondary, complementary vehicle can also soften the tax consequence of 401(k) withdrawals.

Health savings accounts (HSAs) also present an intriguing option, particularly for individuals enrolled in high-deductible health plans. Contributions to HSAs are tax-deductible, grow tax-free, and withdrawals for qualified medical expenses are tax-free.