3 Reasons Not Having a Roth IRA in Retirement Could Cost You

Choosing the right home for your retirement nest egg is important. And if you don’t have an employer plan, you can open an IRA on your own.

IRAs come in two main varieties – traditional and Roth. And funding a traditional IRA may be tempting because you get a tax break on your contributions. With a Roth IRA, there’s no immediate benefit.

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But if you pass up the opportunity to fund a Roth IRA, you might regret it later. Here’s why not having a Roth IRA in retirement could cost you big time.

1. You lose out on flexibility

While Roth IRAs don’t give you a tax break on contributions, withdrawals are tax-free. That’s not the case with traditional IRA withdrawals, which force you to share that money with the IRS.

Not only that, but traditional IRAs force you to take required minimum distributions (RMDs) at a certain point. With a Roth IRA, you get more control over your money. There are no RMDs, so you can leave your balance alone as long as that works for you.

2. You risk taxes on Social Security

You may not realize this, but up to 85% of your Social Security benefits may be subject to taxes, depending on your total income picture. Traditional retirement plan withdrawals count as income when determining whether your Social Security checks are taxable. Roth IRA withdrawals do not.

Here’s what that means. Let’s say you withdraw $60,000 a year from your retirement savings. With a traditional IRA, that amount alone could push you into the territory of having your Social Security taxed. If you take $60,000 a year from a Roth IRA and your only other income stream is Social Security, you may get to keep those benefits tax-free.

3. You might have to pay more for Medicare

Although there’s a standard cost for Medicare Part B, higher earners can be assessed surcharges called income-related monthly adjustment amounts, or IRMAAs. IRMAAs apply to Part B as well as Part D drug plans. And they can potentially add hundreds of dollars a month to the cost of Medicare premiums.

With a traditional IRA, withdrawals count in the calculation used to determine whether IRMAAs apply. Roth IRA withdrawals do not. Having a Roth IRA could therefore be your ticket to paying less for Medicare.

A Roth IRA offers unique benefits that are hard to find elsewhere. Even though you won’t get an immediate tax break on the money you put into a Roth IRA, the perks of having one of these accounts can well outweigh that one drawback. So it’s worth saving for retirement in a Roth IRA, especially since you might sorely regret not doing so down the line.