When you’re planning for retirement, spending more time in the market can really pay off depending on what you’re aiming for and how much risk you’re willing to take. Typically, the longer you plan to invest, the more opportunities you have to save and to take bigger risks. However, as you approach retirement, your time in the market might naturally decrease due to mandatory withdrawals known as Required Minimum Distributions (RMDs). These apply to pretax 401(k) plans and individual retirement accounts once you hit 73.
Interestingly, Roth IRAs stand out because they’re not subject to RMDs during the original owner’s lifetime. Plus, if a surviving spouse rolls the funds over into their own Roth IRA, they can continue to avoid these mandatory withdrawals. This unique feature makes a Roth IRA an exceptional choice if you’re looking for a longer horizon of tax-free investment growth, according to Thomas Scanlon, a certified financial planner at Raymond James in Manchester, Connecticut.
On a related note, here’s some personal finance news to consider: Economists suggest that 2025 might be a renter’s market, though it may not last. There’s also a looming $2.7 billion shortfall in the Pell Grant program, posing a potential threat to college aid, along with discussions around Trump’s proposal to eliminate the ‘carried interest loophole,’ which holds implications for Wall Street.
When you contribute to a Roth IRA, you’re using after-tax dollars. This means you pay taxes upfront on the contributions, but the upside is that, come retirement, your withdrawals are not taxed as income. The Roth IRA contribution limit for 2025 is set at $7,000, or $8,000 for those aged 50 or older, matching the previous year’s cap. However, to contribute, you or your spouse need to have earned income equivalent to the amount you wish to invest.
Keep in mind there are income limits when contributing directly to a Roth IRA, but you can get around these through strategies like Roth conversions. This involves moving pretax or nondeductible IRA funds into a Roth IRA. Scanlon, who is also a certified public accountant, advises that anyone with a pretax IRA seriously consider doing a partial Roth conversion each year.
You should definitely look at how it will affect your taxes before jumping into a Roth conversion to avoid any unforeseen issues, experts recommend.
One of the remarkable benefits Roth IRAs offer is for estate planning, especially if you’re thinking about leaving assets to your children. Without the burden of RMDs during your lifetime, these accounts can provide more opportunities for “tax-free compounding,” meaning your assets keep growing without being taxed—a particularly strategic advantage when transferred to heirs, as noted by CFP Edward Jastrem at Heritage Financial Services in Westwood, Massachusetts.
Since 2020, new rules require that beneficiaries empty inherited IRAs by the end of the 10th year following the original owner’s passing. The good news is they won’t have to pay taxes on the withdrawals. If they choose to leave the funds in the account for the full ten years after the owner’s death, they benefit from a decade of additional tax-free growth, which Jastrem highlights as a substantial advantage for the heir.
“It’s an incredible gift to the heir,” he remarked.
