2 Compelling Reasons to Contribute to a Roth IRA Now

Roth IRAs get a lot of attention in the retirement world, and for good reason. First, you can contribute after-tax dollars to the account now and set yourself up for tax-free income during retirement, providing some predictability during that time. Another appealing feature of the Roth IRA is that anyone can contribute, regardless of age, as long as they have earned income and their income doesn't exceed the limits. If you're aiming for a million-dollar Roth IRA, starting early and earning a decent return can help you achieve that goal.

However, if you're still on the fence about stashing away money in a Roth IRA this year, here are two compelling reasons why you should consider it.

Image source: Getty Images.

1. Your money won't be locked up forever

Retirement accounts sometimes get a bad reputation because you may be charged a penalty if you need to dip into the account before you reach a certain age. This can be a turn-off for savers who may not have another source of funding during rough times. Fortunately, a Roth IRA offers more flexibility.

Let's say you stash away $7,000 in a Roth IRA this year, which is the maximum you can contribute if you are under 50. Over the next two years, your investments grow to $9,000. Although many people are not aware of this, you can always withdraw the original $7,000 you contributed to a Roth IRA whenever you want -- no questions asked. It's the additional $2,000 in earnings that would trigger taxes and penalties if withdrawn early. You can withdraw all your funds tax-free from a Roth IRA once you reach 59 1/2 and have met the requirements of the five-year rule.

However, there's a catch: Once you withdraw money from your Roth IRA, you can't replace it later. That means you'll miss out on the tax-free earnings that can accumulate when you allow your money to compound over time. So while you can access the money you contributed at any time, you won't be able to replenish it and take advantage of the potential growth.

2. You can access a wider selection of investment options

While you're allowed to contribute more money to a 401(k) at work than you can an individual retirement account, and you may even receive an employer match, your investment options will be limited. In a 401(k), you may have a handful of index funds or target date funds to choose from but you typically can't invest in individual stocks.

The Roth IRA is popular among retirement savers because it offers the freedom to invest in a wider selection of assets, including growth stocks, dividend-paying stocks, and exchange-traded funds. You'll have more control over the account since it's not tied to your employer. Where you open your Roth IRA will determine the types of investments you can choose from and the fees you will pay. So, be sure to do your research before opening a Roth IRA.

Although the relatively modest contribution limits might make it more challenging to build a million-dollar balance, it's not impossible if your investments earn a decent return and you have time on your side. Here's how your Roth IRA could grow over the decades, with a 10% average return, thanks to the power of compounding. Keep in mind that investment returns are not guaranteed, though.

Data source: Author

Clearly, the Roth IRA is a retirement account worth considering. Even if you start your retirement journey later in life and don't accumulate a million-dollar balance solely in your Roth IRA, it can still be a valuable complement to other retirement accounts or investments you may have.

On the other hand, if you meet the income requirements but are hesitant to contribute to a Roth IRA because retirement seems far away, remember that you can always access your contributions if needed. However, once you understand the benefits of a Roth IRA, you'll likely prefer to let your investments grow, allowing you to collect more tax-free income during retirement and move closer to the life you've always dreamed of.