The Pros And Cons Of A Roth IRA

The Pros And Cons Of A Roth IRA_1

It cannot be denied that the Roth IRA is a retirement account loved by the public, for it has many advantages that are more beneficial to people than traditional IRAs. However, the Roth is not perfect. Let's take a look at the cons and pros of the beloved Roth.

The Cons Of Roth IRAs

1. Set It Up By Yourself

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The Roth IRA setup system may not be the smartest. You'll need to open your Roth IRA and fund it yourself every year. The only way to prevent forgetting to renew is to set up automatic contributions from your bank account.

2. Low Maximum Contribution

The Pros And Cons Of A Roth IRA_3

Roth IRA has no advantage in terms of contribution limits. Like traditional IRAs, a Roth allows you to contribute only $5,500 a year, with an additional $1,000 if you're over 50. However, you can also invest in a 401(k) plan, where you can contribute up to $18,000 a year.

3. Income Restrictions

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Roth IRA applicants have income limits. To contribute to a Roth IRA in 2022, a single filer must have an adjusted gross income of less than $144,000, and for married taxpayers, their MAGI must be under $214,000.

4. Prepay Your Tax

The Pros And Cons Of A Roth IRA_5

Roth IRAs would cost you in terms of saving. If you are having trouble saving for retirement, it is better to take a tax deduction offered by traditional IRAs.

It's time to take a look at the pros.

The Pros Of Roth IRAs

1. No Minimum Distributions Requirement

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Unlike traditional IRAs, Roth guarantees that you don't have to take withdrawals from your retirement account when you turn 72. What's more, you can even leave your account to your children, who can enjoy non-taxable distributions throughout their lives.

2. Savings Grow Tax-Free

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If your tax rate is higher in retirement, the Roth IRA is a better option because it offers a 15% tax rate, half the traditional rate. If your annual investment is $5,500 in a Roth, after 30 years you'll receive $555,902, compared to $472,835 in a traditional IRA.

3. Withdraw Your Contributions At Will

The Pros And Cons Of A Roth IRA_8

Having a Roth IRA retirement account means that you can withdraw contributions at will without penalty. In this case, the Roth IRA becomes your reliable backup emergency fund.

4. Get Tax Diversification

The Pros And Cons Of A Roth IRA_9

The advantage of having some money in a Roth is that you can adjust the allocation of each account so that you don't push yourself into a higher tax bracket. If you need some income, you can withdraw it from your Roth account, which isn't counted as taxable income.


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