The Pros and Cons of a ROTH IRA: Everything You Need to Know

Are you hearing people throw around the term “ROTH IRA”, and you are confused as to what it is and why people are talking about it? Or maybe you understand what it is, but are still struggling on whether to open one. Check out our list of pros and cons of a ROTH IRA below. 

What is a ROTH IRA?

In this account, you contribute after-tax dollars to save for retirement. 

It is just one type of IRA. Most people will usually choose between a traditional or a ROTH IRA. There is also a SEP and SIMPLE IRA. There are several benefits of a ROTH IRA so let’s begin with those. 

Pros and Cons of a Roth IRA

Like most things, ROTH IRA also has pros and cons. Below we go deeper into what those pros and cons are and hopefully help you decide if a ROTH IRA is right for you.

Benefits of ROTH IRA

Not Tied to a Job

A major benefit for many is that ROTH IRA is not tied to a job like a traditional IRA. You can make contributions outside of employment. Your spouse is also allowed to make contributions as well. 

Tax-Free

 This is a benefit for many because it will provide tax-free growth and will in turn give you a tax-free retirement life. 

Emergency Savings Account

A ROTH IRA works as a retirement account for some or others as an emergency savings account. You can withdraw contributions tax-free and penalty-free before age 72. 

No Minimum Distributions

Since ROTH IRA requires no minimum distributions, this gives the individual a sense of flexibility. There might be requirements for your spouse. For more information on distributions, check here.

CONS of ROTH IRA

While ROTH IRA does have a fair amount of benefits, there are also a few disadvantages to this type of retirement account. If you need assistance on making a decision click here for more information. . 

Paying Tax Now

For some, especially those who are younger might see this as a disadvantage rather than an advantage. This could make things a little more troublesome to save. 

Responsibility is Yours

With a traditional IRA your employer may enroll you automatically and your contributions can be automatically sent to your account. With a ROTH IRA you are responsible for setting it up and remembering to contribute to it. 

Limits and Restrictions

ROTH IRAs do have specific limits. There is a contribution limit of $6,000 (or $7,000 if you are over the age of 50). 

There are also income restrictions. Depending on how much you make can depend on your contribution limit. Be sure to look around at different ROTH IRA options. 

How Do I Choose?

You might be thinking to yourself, “ok now I understand the pros and cons of ROTH IRA, but how do I choose?” 

If you liked this article then make sure to check out our website for more information on how to set up a financially stable future.