I Used to Think a Roth IRA Was the Best Retirement Savings Plan. Here Are 2 Options I Now Like Better.

A few years ago, if you had asked me to call out the best retirement savings account in existence, I probably would've pointed to the Roth IRA. Roth IRAs are loaded with benefits -- ones that can make retirement easier financially.

With a Roth IRA, you get to enjoy tax-free gains in your account as well as tax-free withdrawals. Think about how stressful taxes are in your life right now. Well, imagine not having to pay them on your main source of retirement income.

Plus, Roth IRAs do not force savers to take required minimum distributions (RMDs). That means you can benefit from the aforementioned tax-free growth for as long as you want, and you're able to pass a portion (or all) of your Roth IRA on to your heirs if that's a big goal of yours.

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But despite these very clear benefits, I'm no longer convinced that the Roth IRA is the best retirement savings plan out there. Here are two options I'm now more of a fan of.

1. Traditional IRAs

I can acknowledge that Roth IRAs offer far more benefits than traditional IRAs on paper. But Roth IRAs have a very big flaw, and it's one that I've seen hurt a lot of savers.

With a Roth IRA, there's no tax break on your contributions. Because of this, the IRS is very lax about early withdrawals. As long as you only remove the principal portion of your Roth IRA, and not the gains portion, there are no penalties for taking a withdrawal before age 59 1/2.

You might argue that that's a good thing. But I don't think it is.

I've seen friends of mine raid their Roth IRAs for the most ridiculous reasons, from making improvements to their homes to taking vacations. With a traditional IRA, you do get a tax break on your contributions, which means the IRS will slap you with a penalty for taking withdrawals prior to 59 1/2. But I'd argue that that's a positive thing if it motivates you to keep your savings intact.

To put it another way, a Roth IRA isn't going to do you much good in retirement if you whittle your balance down to $100,000 by the time your senior years arrive. You're much better off with a $1 million traditional IRA than a Roth IRA with one-tenth the income.

2. HSAs

Health savings accounts (HSAs) aren't a retirement savings plan per se -- but they can certainly function as one. All you need to do is leave your money alone during your working years, rather than take withdrawals to pay for near-term medical expenses.

The reason I think HSAs beat Roth IRAs is that they offer even more tax benefits. Roth IRAs give you tax-free investment gains and withdrawals. HSAs give you those as well; only HSA contributions are also tax-free. So essentially, HSAs combine the benefits of traditional and Roth IRAs.

Also, just as Roth IRAs don't have RMDs, neither do HSAs. Since those funds never expire, you can carry them forward as long as you want to. This means that if your health is outstanding in your 70s, you can let your HSA balance sit and grow in case your medical costs rise in your 80s and you need the funds then.

And if you're worried about HSA penalties for nonmedical withdrawals, know that those go away once you turn 65. So from there, your HSA can double as a traditional IRA. This does mean that nonmedical withdrawals will be subject to taxes. But you'll still have gotten the benefit of tax-free contributions.

To be clear, I'm not saying you should write off a Roth IRA completely in the course of your retirement planning. Rather, I'm just no longer convinced that Roth IRAs are the absolute best savings tool out there. Not only do I think they have a major flaw, but I think the tax benefits of HSAs make those accounts worth maxing out before putting money into a Roth IRA.

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