Even if you have a 401(k) or other workplace plan, it can make sense to save in an IRA early, we suggest to check this information over here to see what option is the best for you.

The Pros and Cons of a Roth 401k

The lower taxes associated with saving early can more than pay for itself with tax benefits later.

Are You Taxed When You Roll Over Your Retirement Savings to an IRA?

The IRS treats traditional IRAs the same as 401(k)s when it comes to taxes.

If you make more than a certain amount, you’re taxed on the difference.

Here’s how that works:

If you have $2,000,000 or more in savings, you’re considered to be in the higher tax bracket when you withdraw your money, and you’ll owe taxes on any withdrawals from your account.

If you have between $2,000,000 and $3,000,000 in savings, you’re taxed at a 30 percent tax rate, with 30 percent of all withdrawals going to the IRS.

Let’s say you have $1.2 million in retirement savings. If you’ve had $1.2 million in taxable income, you’re in the 15 percent tax bracket, and the tax rate will reduce your savings by $1 million.

The same applies to any withdrawals you make after reaching age 59 1/2.

But the tax rate is different for an IRA, which means you won’t owe a tax bill on the first $3,000 you contribute. If you invest another $3,000 in an IRA during your retirement, you won’t have to pay taxes on any of that money.

If you hit your limit, you can roll your money over into a traditional IRA.

You will, however, have to pay taxes on the conversions between traditional and Roth IRAs. If you exceed your contribution limit for the year, you’ll have to pay taxes on the money that you’re leaving the Roth IRA and paying in from a traditional IRA.