Roth IRA Overview

Advantages

The biggest advantage of a Roth IRA is when you decide to withdraw funds after putting money into this retirement account for years, it is completely tax-free. As stated, the money contributed is from after-tax income, which means it has already been taxed. Additionally, since the tax rate could also be higher than what it was when you contributed the funds in the first place, you may also be saving money that way.

Another advantage is individuals can withdraw their contributions at any time since they deposited the funds after they were taxed. Of course, there are small penalties for withdrawing all of the money early, though there is also a certain amount individuals can access penalty-free if necessary. However, the earnings from those contributions (i.e., interest and dividends) are not eligible for withdrawal at this point.

These two advantages are major benefits because other retirement savings accounts require penalties for removing any earnings early. However, as is clear, there are some disadvantages and limitations to Roth IRAs. Continue reading to reveal details on this.