Roth IRAs can be a powerful tool for young investors looking to save for retirement. Traditional IRAs offer upfront tax breaks as you contribute to retirement, but Roth IRAs can offer a higher reward in the long-term. Watch this video to find out more about Roth IRAs and why you could be missing out by not investing in one. For access to live and exclusive video from CNBC subscribe to CNBC PRO:

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Why Every Millennial Should Have a Roth IRA

As a millennial, it may be tempting to focus solely on the present: paying off student loans, finding a stable job, and enjoying life. However, starting to plan for retirement early is crucial, and one excellent way to secure your financial future is by opening a Roth IRA.

So, what exactly is a Roth IRA, and why is it beneficial for millennials?

A Roth IRA (Individual retirement account) is a type of retirement savings account that offers several key advantages over traditional IRA accounts. The primary distinction is that contributions to a Roth IRA are made with after-tax dollars, meaning you pay taxes on the money before you contribute it. However, when you withdraw the funds during retirement, qualified distributions are completely tax-free, including any capital gains earned over the years. This key feature makes Roth IRAs incredibly appealing to young investors.

Here are a few reasons why every millennial should consider opening a Roth IRA:

1. Tax-Free Growth Potential: By contributing to a Roth IRA early in your career, your earnings have much more time to grow tax-free. As the power of compound interest takes effect, your investments can multiply significantly over time without the burden of paying taxes on the gains.

2. Flexibility: Roth IRAs offer flexibility and accessibility. Unlike traditional IRAs, which require minimum distributions at age 72, Roth IRAs have no required minimum distributions throughout your lifetime. This means you can let your investments continue to grow for as long as you desire, taking withdrawals only when necessary.

3. Emergency Fund Alternative: While it’s crucial to have a separate emergency fund, a Roth IRA can serve as a backup option. Contributions to Roth IRAs can be withdrawn at any time without incurring penalties or taxes. However, it’s essential to remember that withdrawing earnings before the age of 59 ½ may result in taxes and penalties.

4. Diversification and Investment Opportunities: A Roth IRA allows for more extensive investment opportunities compared to employer-sponsored retirement plans like 401(k)s, which often have limited investment choices. With a Roth IRA, you have the freedom to invest in a broader range of assets, including individual stocks, exchange-traded funds (ETFs), mutual funds, and real estate investment trusts (REITs). This diversification helps reduce risk and potentially increase your long-term returns.

5. Avoiding Future Tax Increases: Given the current economic situation and the likelihood of increased future taxes to finance government debts, having a tax-free investment vehicle like a Roth IRA could prove even more advantageous in the coming years.

6. Early Retirement: If retiring early is a goal, a Roth IRA can be incredibly valuable. Since contributions can be withdrawn at any time without penalty or tax, you can use your Roth IRA funds to bridge the gap between early retirement and the age when you can access other retirement accounts without penalties.

Opening a Roth IRA and contributing regularly may seem overwhelming for millennials grappling with other financial responsibilities, but with effective budgeting and planning, it can be achieved. Starting small is better than not starting at all, and even modest contributions can accumulate significantly over time.

In conclusion, opening a Roth IRA early in your career can provide an effective tool for securing a comfortable retirement. The combination of tax-free growth potential, flexibility, accessibility, and diversification opportunities make Roth IRAs an invaluable asset for every millennial. By taking advantage of this financial vehicle, millennials can establish a solid foundation for their future and enjoy the benefits of compound interest, tax-free withdrawals, and the peace of mind that comes from securing their retirement years.