The Advantages and Disadvantages of Roth IRA

A Roth IRA is a retirement account where contributions are not tax deductible. It can be opened individually or together with a spouse. During retirement, it is a valuable source of income as all the money that can be withdrawn from the account is not subject to income laws levied by the IRS.

It all sounds good, right? Then again, anything that sounds too good has to have some drawbacks, and that is the case with Roth IRA. To know better about this, here’s a look at its advantages and disadvantages:

List of Advantages of Roth IRA

1. It is flexible
You can withdraw money free from tax from your Roth IRA if it has been open for at least five years and you are 59.5 years old. You can also withdraw money if the minimum requirements aren’t met, but this has to be under certain circumstances that include a death in the family, disability of the account owner and education.

2. It doesn’t allow mandatory withdrawals
A traditional IRA account requires that you withdraw money when you are 70.5 years old. With Roth IRAs, you don’t have to do this at all. When you don’t withdraw money from your account, it will pass on to following generations and it should be taken as a distribution in their lifetime.

3. It allows you to save during retirement
Other retirement accounts don’t have this feature, but a Roth IRA allows you to continue saving even during your retirement. If you choose to work during your retirement, you can still contribute to your Roth IRA just as long as you don’t exceed income requirements. In addition, the money you saved can be passed on to other members of your family in case of death.

List of Disadvantages of Roth IRA

1. It is not tax deductible
Not being taxed should be a case for merriment, right? Not so in this case. With a traditional IRA, your contributions are tax deductible and can save money on yearly taxes. This is not the case for a Roth IRA.

2. Contributions don’t minimize gross income
Contributions to a Roth IRA will not reduce gross income. As such, you won’t be able to take advantage of tax breaks which are provided when you can show lower income. This is different from a traditional IRA where your gross income is reduced allowing you to access different tax breaks.

3. It has income limits
With a Roth IRA, you aren’t eligible to contribute when your income exceeds a certain amount. This can become problematic when your income does grow and gets over the limit. A rise in income isn’t at all unusual which makes a Roth IRA quite tricky. The income limit for individuals is $114,000 while married families have a $191,000 limit.

Put simply, a Roth IRA is great as long as you meet the required minimum for opening an account. They offer much more flexibility compared to a traditional IRA but you may or may not get the best benefits depending on your financial status in life.

Author Bio
Natalie Regoli is a child of God, devoted wife, and mother of two boys. She has a Master's Degree in Law from The University of Texas. Natalie has been published in several national journals and has been practicing law for 18 years.