She also likes that if you leave retirement savings to your children as an inheritance, your children won't lose much of the money to the IRS as they would if you left them cash in a traditional account. Orman likes the added flexibility that goes along with this kind of account, which is a big reason why she pushes for investing your retirement money in a Roth.

With a Roth IRA, you also have the option to withdraw your contributions before age 59 1/2 without being subject to a tax penalty - unlike with traditional accounts (although you'd still owe a penalty on withdrawn gains). You have the flexibility to withdraw your funds whenever you would like instead of when the government tells you to.

There are also some other benefits she believes are important as well.įor example, while Roth 401(k)s have required minimum distributions (which mandate withdrawals after age 72), Roth IRAs have no such requirement to begin taking money out. 'Please don't go for the tax write off today so that later on in life you have to pay taxes on a traditional retirement account. Orman believes deferring your tax savings will leave you better off. With traditional accounts, you pay taxes at your ordinary income tax rate when making withdrawals.

Withdrawals from Roth accounts are tax free, provided you're age 59 1/2 and follow other requirements such as not taking money out within five years of first opening your Roth account.

With traditional 401(k) or IRA accounts, you do get tax savings in the year you invest because your contributions are deductible from your taxable income. You don't enjoy any upfront savings in the year you invest in them.

Contributions are made to Roth accounts with after-tax dollars.

Roth IRA and Roth 401(k) accounts are different from traditional 401(k) or IRA accounts in important ways:

For those whose employers don't offer them, Orman is in favor of all types of Roth retirement accounts, which include a Roth IRA. These are workplace accounts that some employers provide. Bonus Offer: Score up to $600 when you open this brokerage accountĭiscover: Best online stock brokers for beginners

Suze orman the money book