The beginning of the year is a common time to get raises, because companies typically have a new budget to work with. If you don't need the extra money a raise can provide, you might consider stashing it away for retirement. A couple thousand dollars more today could easily be worth tens of thousands after a decade or two.
Once you've decided to save for your future, you then have to figure out where you'll put that money. The right answer varies by individual, but here are three signs a Roth IRA could be your best option in 2025.
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1. You don't want to pay taxes on your retirement account withdrawals
The main advantage of Roth IRAs is that you get tax-free withdrawals in retirement, as long as you're at least 59 1/2 years old and have had the account for at least five years. This can really help you stretch your savings further, because you won't have to worry about giving an unknown percentage of your savings to Uncle Sam when you're older. If you're concerned about taxes being higher in the future, locking in tax-free withdrawals now is a smart move.
Roth 401(k)s also give you this option, but if you don't have access to one of these through your employer, a Roth IRA is your best option. Plus, if you have to make an early withdrawal, Roth IRAs let you take out your contributions first, unlike Roth 401(k)s. So you may be able to tap some of that savings early without penalty.
2. You expect to be in the same or a higher tax bracket in retirement
To take advantage of the tax-free withdrawals a Roth IRA offers, you have to pay taxes on your contributions in the year you make them. That's why Roth IRAs make the most sense for those who expect to be in the same or a higher tax bracket in retirement. By paying taxes now, they give a smaller percentage to the government and are able to keep more for themselves. However, those in high tax brackets may prefer to delay taxes on their retirement savings until later.
Some high earners may not be able to contribute directly to a Roth IRA, thanks to earnings limits. In this case, if you want Roth savings, you'll have to go the backdoor route where you contribute funds to a traditional IRA and then do a Roth IRA conversion.
3. You don't expect to need your money anytime soon
Though Roth IRAs permit you to withdraw contributions penalty-free at any time as discussed above, it's best to avoid this if you can. When you withdraw money from your retirement accounts early, you're not only removing your personal contributions, but also any earnings you could have received from those contributions had you left the money alone until retirement.
If you think there's a chance you may need to withdraw some of your money before you retire, consider keeping it in a high-yield savings account or a certificate of deposit (CD). You could also invest it in a taxable brokerage account. These don't have the same tax benefits as a Roth IRA, but if you hold your investments for at least a year before selling, you'll pay long-term capital gains tax on them, which can save you money compared to paying ordinary income tax on those funds.
If you don't think a Roth IRA is a good fit for you, that's OK. Other retirement accounts are available. Weigh the pros and cons of each before deciding which is right for you.
If you choose a Roth IRA, stay mindful of the annual contribution limits. Adults under 50 can contribute up to $7,000 to a Roth IRA in 2025, assuming they don't run into problems with the income limits, while those 50 and older can save up to $8,000. Be careful not to exceed these limits, though, or you could face steep penalties.
