It’s hard to believe, but we’re just a couple of months away from 2025. Now’s usually the time when people start reflecting on the financial decisions they’ve made throughout the year and try to squeeze in a few more things, like boosting retirement contributions, before the end of December.

Looking back on the year can also give you a better idea of how you want to manage your money in 2025. For example, in January, I decided I wanted to max out my Roth IRA. I’m pretty happy with the decision, and I plan to do it again next year. It might be something you want to consider over these next few months, too.

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Why I chose my Roth IRA

I first opened a Roth IRA when I was 20. I chose that account over a traditional IRA because I wasn’t earning a lot at the time and I was only making sporadic contributions. I saw it as a pretty safe bet that my taxable income in retirement would be about the same or higher than it was in my early 20s, so it made the most sense for me to pay taxes upfront to get tax-free withdrawals later in retirement.

By the time I moved to freelancing in my late 20s, my income had grown quite a bit and I opened a SEP IRA. This became my primary retirement account, in part because it offered much higher contribution limits than my Roth IRA. SEP IRAs let you contribute up to the lesser of either 25% of your annual compensation or $69,000 in 2024. Traditional and Roth IRAs, on the other hand, only let you save up to $7,000, or $8,000 if you’re 50 or older.

This year, I decided I’d return to saving in my Roth IRA, even though I knew it would raise my tax bill today. You fund SEP IRAs with pre-tax dollars, which lowers your tax liability now. By diverting some money to my Roth IRA, I chose to accept this increased tax liability now so I’d have more tax-free funds to use in retirement.

I need to have a mix of savings because it gives me more flexibility. If it gets to this time of year in retirement and I realize I’m nearing the top of a tax bracket due to my SEP IRA withdrawals (which count as income), I can fall back on Roth savings for the rest of the year to avoid this, since Roth IRA withdrawals don’t typically count as income if you’re at least 59 1/2 years old. If I only had my SEP IRA funds, I wouldn’t have this option.

It also lets me leave my savings alone for as long as I want. Roth IRAs are one of the only retirement accounts that don’t have required minimum distributions (RMDs) beginning in the year you turn 73. This forces you to withdraw money from your accounts each year, whether you want to or not.

There’s still time for you to make Roth IRA contributions

Saving money in a Roth IRA in 2024 could make sense for you if:

• Reducing your current tax liability isn’t a huge concern for you.
• You expect you’ll be in the same or a higher tax bracket later than you’re in today.
• You want the option to make some tax-free withdrawals in retirement.
• You want the freedom to decide when you withdraw your retirement savings.

The first step is to open a Roth IRA if you don’t already have one. You can do this with pretty much any broker. You may need an initial deposit, and you’ll have to decide what you want to invest in.

You may not be able to contribute the whole $7,000 (or $8,000 if 50+) by the end of 2024, and that’s OK. Set aside what you can. Remember, you can make prior-year contributions to Roth IRAs up until the tax deadline on April 15, 2025. This can work well if you receive a year-end bonus, for example, that you don’t have time to contribute before Dec. 31, 2024. Just make sure you contact your plan administrator first to ensure it applies your contribution to the correct tax year.

Roth IRAs aren’t for everyone

As nice as Roth IRA savings are, though, they might not be your best option. Here are some signs a Roth IRA isn’t the best place for your savings:

• You’re a high earner who expects to be in a lower tax bracket in retirement than you are today.
• Your modified adjusted gross income (MAGI) is so high, that you’re not allowed to contribute to a Roth IRA due to income limits (Note: Roth 401(k)s are still an option if you have access to one).
• Saving money in a Roth IRA would cause you significant financial hardship in the present.

In these cases, you may want to find a different place to store your money. This could be a different retirement account, or you may want to keep your cash somewhere more accessible, like a high-yield savings account, where you can use it for everyday expenses.

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