A Roth IRA can be an excellent way to save for retirement, and it has several benefits that you might not be aware of. For example, did you know that a Roth IRA can also be an effective tool to save for your children's college education? Or that a Roth can be a valuable part of your estate planning?

If you'd like to learn more about IRAs in general, head to our IRA Center. For now, here's what you need to know about some of the best Roth IRA benefits.

1. The tax benefits can be excellent
The most obvious benefit of a Roth IRA is tax-free compounding: You don't have to pay taxes on any capital gains or dividends on your investments. On top of that, any qualified withdrawals you make during retirement are free from income tax.

Hands holding a piggy bank and a market, the piggy bank says "ROTH IRA"

Image source: Getty Images.

It's worth mentioning that you get a similar tax benefit with a traditional IRA. In addition to tax-free capital gains and dividends, a traditional IRA gives you an up-front tax break, as you may be able to deduct your contributions from your taxable income. So the choice between the two account types comes down to whether you want your tax benefits now or in retirement.

One of the benefits of the Roth IRA's tax-free withdrawals is that they protect you from income tax raises. If you're still years or even decades from retirement, then there's a good chance you'll be in a higher tax bracket when you retire, so it may be best to invest through a Roth and forgo the up-front tax break. Federal income tax rates are historically low right now -- after all, the top tax rate was 70% as recently as 1981. Contributing to a Roth IRA could allow you to avoid paying higher taxes in the future.

Source: www.taxfoundation.org

2. No minimum or maximum age requirements
While a traditional IRA requires account owners to stop contributing and begin taking minimum distributions at age 70 1/2, a Roth IRA has no such mandates.

In fact, you are allowed to contribute to a Roth IRA so long as you have earned income, even if you're 100 years old and receive payments from a business you own. The same goes for minors with income. If you're 14 and work a summer job, then you can contribute to a Roth IRA as well, giving you the potential for many years of tax-free growth.

You're also not required to begin taking distributions from your Roth IRA at any particular age. If you don't need the money, you can leave it alone and enjoy additional years of tax-free compounding, which can have an enormous effect over the years.

Let's say you retire at age 70 with a $500,000 Roth IRA, but you don't need the money because your other retirement investments, such as your 401(k), provide enough income. If you leave your Roth IRA alone and it compounds at a conservative rate of 6% per year, then the account could be worth $1.2 million by the time you reach age 85. The fact that you never have to withdraw funds from a Roth IRA makes it an excellent vehicle for building an inheritance for your loved ones (more on that later).

3. Your can still use your money if you need it
My personal favorite Roth IRA benefit is that your money isn't as "tied up" as it is with other types of retirement accounts. Sure, all retirement plans -- 401(k)s, traditional IRAs, etc. -- have some provisions allowing you to make early withdrawals under certain circumstances, namely, financial hardship.

However, your Roth IRA contributions -- though not any investment gains -- can be withdrawn at any time and for any reason. If you have contributed $5,000 to a Roth IRA each year for 20 years, then you can access $100,000 of your savings whenever you need to. In a sense, your Roth IRA can be a retirement plan and an emergency fund in one.

There are also withdrawal provisions that let you access your investment gains early without a penalty. For example, you can withdraw gains to spend toward the purchase of your first home or to cover postsecondary education expenses.

For this reason, a Roth can also be an effective tool to save for your children's (or your own) college education. If you work a part-time job during high school, you could save your money in a Roth IRA, enjoy tax-free compounding for a few years, and then withdraw any money in your account tax-free once you're in college -- or leave any excess in the account to get a head start on retirement savings. Note that if your withdrawals include investment gains, you'll be responsible for paying income tax on the gains unless you're over age 59-1/2, so keep this in mind before choosing to withdraw more than your original contributions early.

4. Roth IRAs can be good for estate planning
A Roth IRA can also be an effective estate planning tool, as it can not only allow your money to grow tax-free for your entire life, but also let you leave tax-free income to your heirs.

Your heirs will be subject to minimum distributions based on their age beginning in the year after your death -- unlike the original account holder, the inheritor cannot let money in an inherited Roth IRA compound tax-free indefinitely.

The IRS publishes a list of "life expectancy factors" that are used to calculate the minimum distribution requirements. For example, let's say you inherit a $100,000 Roth IRA and you're 35 years old in the year following the owner's death. The life expectancy factor is 48.5 for a 35-year-old, so to calculate the annual distribution requirement, you would take the account balance and divide by this factor, resulting in a $2,061 required distribution. The following year, you would use the life expectancy factor for a 36-year-old, and so on.

Even with these requirements, a Roth IRA can be an effective way to "prepay" taxes for future generations. Plus, given that you owe no taxes on your Roth contributions, setting aside as much as possible in a Roth can reduce the size of your taxable estate.

The takeaway
This is by no means an exhaustive list, and there are many pros and cons to all types of retirement plans, so it pays to do extensive research before making a decision. Having said that, the Roth IRA is a unique retirement savings vehicle and could be an excellent part of your long-term financial planning.
