Roth IRA Pros & Cons

A Roth IRA is a type of individual retirement account that the federal government introduced in 1997 under the Taxpayer Relief Act. You can open a Roth IRA as long as your adjusted gross income is below the annual limit for your filing status. This type of IRA has several pros and cons that you should consider before investing in one.

Tax Benefits

One advantage of a Roth IRA is that you don't pay taxes on your earnings or withdrawals, as long as you follow certain rules.

No Required Withdrawals

Another advantage is that the government doesn't require you to begin making withdrawals from a Roth IRA when you reach age 70 1/2, as it does with a traditional IRA.

Investment Options

Another benefit is that you can invest your account in a range of investments, including stocks, bonds, mutual funds, certificates of deposit and real estate.

No Tax Deduction

One disadvantage of a Roth IRA is that you can't deduct your contributions on your income taxes, like you can with a traditional IRA or 401k plan.

Limited Access

Another disadvantage is that you can't withdraw earnings from a Roth IRA before you reach age 59 1/2 unless you have owned the account for at least five years and meet other requirements. Otherwise, you may have to pay taxes and a 10 percent penalty on the amount you withdraw.

References

• Roth IRA Rules
• There's Something About Roth
• Roth IRA Basics