I am always surprised at the number of people who do not know what a ROTH IRA is and why they should have one. My financial adviser explained it to me years ago and I have been a strong proponent of them. For my UK audience, sorry I have no clue what might be equivalent to this!
Easiest way to explain this is through an example.
Joe is saving $500 a month into his 401k. He pays no tax on this money. When he retires he has accrued $500,000 in his retirement account and starts to withdraw. With each withdrawal he pays tax at whatever the current rate is. So if he had paid in $200,000 with no tax, he then pays tax on withdrawing $500,000.
Mary is also saving $500 a month into her Roth IRA. She pays tax on this money at today’s rates. When she retires she has also accrued $500,000 in her retirement account and starts to withdraw. With each withdrawal she pays NO tax. So if she had paid in $200,000 and paid tax on this, she gets to withdraw $500,000 TAX FREE.
The only gamble you are taking with this account is whether future tax rates are going to be higher or lower than today. The way governments are having to spend I think there is very little chance of future tax rates being less than today.
Most Credit Unions and banks/brokerage firms offer Roth IRAs. Best to use 401k to keep company match money in and then extra money you invest into your ROTH. Remember, don’t keep all your eggs in one basket!!! With my sense of balance I have always thought this a very apt expression.
OK, I better do some legal disclosures here, just in case. I am not a financial expert nor do I have any qualification in it. Consult a certified financial professional before changing your investment strategy. My words of wisdom are my free expression of speech and do not reflect the views of anyone I am affiliated to, whomever that might be!