If you're in your 20s and new to investing, opening a Roth individual retirement account is a great place to start.

It's a "no-brainer" for "anyone in their 20s," says Eustache Clerveaux, a certified financial planner and senior analyst at Hudson Financial Group. 

That's because Roth IRAs offer several distinct benefits that make them appealing to younger investors, particularly those who don't earn a lot of money early in their careers.

Here's a look at five key advantages.

1. It's a smart alternative to 401(k)s

If your employer offers a 401(k) with matching contributions, it's worth prioritizing — matched funds are essentially free money from your employer that grows over time. This includes Roth 401(k)s.

But for younger workers who don't have access to a workplace plan, a Roth IRA can be a great way to start building wealth. Like a 401(k), Roth IRA contributions benefit from compound interest, where your money and its returns grow together over time.

But unlike traditional 401(k)s, Roth IRAs require you to pay taxes upfront on contributions. The trade-off? Your investments grow completely tax-free. "You've already paid taxes on the seed, so you don't have to pay taxes on the harvest," says Stephen Maggard, a CFP in South Carolina.

2. Younger investors are less likely to hit Roth IRA income limits

One key reason to start investing in your 20s is that you're more likely to qualify for a Roth IRA. Eligibility to make contributions is based on income and early in your career, you're less likely to exceed the limits.

For 2024, eligibility begins phasing out at a modified adjusted gross income of $146,000 for single filers and $230,000 for married couples filing jointly. Once your income exceeds $161,000 as a single filer or $240,000 as a married couple filing jointly, you lose eligibility to contribute directly to a Roth IRA.

3. Tax-free withdrawals

Roth IRAs offer unique flexibility with withdrawals. Since you've already paid taxes on your contributions, you can withdraw them anytime, tax-free and penalty-free, no matter your age or how long the account has been open. 

With tax-free withdrawals on contributions, "Roth IRAs can serve as a secondary emergency fund or to support future needs like education or a first home," says MaryAnne Gucciardi, a CFP and founder of Wealthmind Financial Planning.

For earnings beyond your contributions, withdrawals in retirement can also be tax-free, as long as you meet certain requirements. You generally need to be at least 59½ years old and have had the account open for at least five years.

This tax-free treatment provides more certainty about how much money you'll have in retirement, since you won't be subject to unpredictable future tax rates.

4. Your age likely favors tax savings

In your 20s, you're likely earning less early in your career, which puts you in a lower tax bracket. This makes it an ideal time to pay taxes upfront on Roth IRA contributions.

By doing so, you lock in today's lower tax rate and allow your investments to grow tax-free. Later, when you withdraw from your Roth IRA in retirement, you won't owe taxes — regardless of how high your income or tax bracket may be at that time.

"If you can pay tax at 12%, 22% or 24% now instead of 35% or 37% later, the math says to pay the lower rate now," says William Michael Lofley, a CFP in Florida.

5. It's harder to max out contributions earlier in your career

One downside to Roth IRAs is their relatively low contribution limit — $7,000, as of 2024 ($8,000 if you're 50 or older) — compared with accounts like 401(k)s. But for younger savers just starting out, the simplicity and accessibility of a Roth IRA can outweigh the lower cap.

At $583 per month, maxed-out contributions might not be realistic for many early-career professionals juggling "other critical expenses" like student loans, rent or saving for a home, says Jim White, a CFP in Pennsylvania. But even smaller contributions can add up over time, thanks to the power of compounding interest.

As your income grows, you'll likely need other accounts to keep building wealth, but early on, a Roth IRA offers a simple, tax-efficient way to get started.

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